Solve 3 Accounting Questions

4.The West Division of Sophia Industries reported the following data for the current year.

Sales $4,000,000

Variable costs 2,600,000

Controllable fixed costs 800,000

Average operating assets 5,000,000

Top management is unhappy with the investment center’s return on investment (ROI). It asks the manager of the West Division to submit plans to improve ROI in the next year. The manager believes it is feasible to consider the following independent courses of action.

1. Increase sales by $400,000 with no change in the contribution margin percentage.

2. Reduce variable costs by $120,000.

3. Reduce average operating assets by 4%

Instructions

(a) Compute the return on investment (ROI) for the current year.

(b) Using the ROI formula, compute the ROI under each of the proposed courses of action. (Round to one decimal.)

5.

Isabella Company has developed the following standard costs for its product for 2019:

ISABELLA COMPANY

Standard Cost Card

Product A

Cost Element Standard Quantity × Standard Price = Standard Cost

Direct materials 4 pounds $3 $12

Direct labor 3 hours 8 24

Manufacturing overhead 3 hours 4 12

$48

The company expected to produce 30,000 units of Product A in 2020 and work 90,000 direct labor hours.

Actual results for 2020 are as follows:

· 31,000 units of Product A were produced.

· Actual direct labor costs were $746,200 for 91,000 direct labor hours worked.

· Actual direct materials purchased and used during the year cost $346,500 for 126,000 pounds.

· Actual variable overhead incurred was $155,000 and actual fixed overhead incurred was $205,000.

Instructions

Compute the following variances showing all computations to support your answers. Indicate whether the variances are favorable or unfavorable.

(a) Materials quantity variance.

(b) Total direct labor variance.

(c) Direct labor quantity variance.

(d) Direct materials price variance.

(e) Total overhead variance.

6.

Anna Corp. is considering purchasing one of two new diagnostic machines. Either machine would make it possible for the company to bid on jobs that it currently isn't equipped to do. Estimates regarding each machine are provided below.

Machine A Machine B

Original cost $106,000 $ 175,000

Estimated life 8 years 8 years

Salvage value -0- -0-

Estimated annual cash inflows $30,000 $45,000

Estimated annual cash outflows $10,000 $15,000

Instructions

Calculate the net present value and profitability index of each machine. Assume a 9% discount rate. Which machine should be purchased?

Machine B has a negative net present value, and also a lower profitability index. Machine B should be rejected and machine A should be purchased.