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test on: activity variance analysis, revenue and spending variance allowances, flex budget variances analysis, ROI analysis, Calculation of standard cost, Future and Present value problems, Capital budgeting analysis

test on: activity variance analysis, revenue and spending variance allowances, flex budget variances analysis, ROI analysis, Calculation of standard cost, Future and Present value problems, Capital budgeting analysis.

I don’t understand this Accounting question and need help to study.


BUS 121: Managerial Accounting

Examination #3A, Chapters 10, 11 & 12


Answer the following problems either in the spaces provided on this exam form or on separate sheets of paper. If you use any separate sheets, make sure you turn them in to the instructor and that they get stapled to the rest of your exam.

  1. Calculation of Standard Costs

Ace Janitorial Supply manufactures a cleaning solvent, Ace Zappo.

Purchase of Ammoniol: The main ingredient is a raw material called Ammoniol. It is purchased in 10-gallon containers at a cost of $155 per container, terms 2/10 n/30. Ace takes advantage of all cash discounts. Shipping terms are FOB Shipping Point; and charges amount to $264 for the shipment of fifty (50) of the 10-gallon containers of Ammoniol. Hazardous materials handlers are required at the receiving dock when the product arrives. These two employees, at an average labor rate of $24 per hour, require one and one-half (1½) each to unload and store the total of fifty (50) 10-gallon containers of Ammoniol.

Use of Ammoniol: The bill of materials calls for 4.86 quarts of Ammoniol per bottle of Ace Zappo Cleaning Solvent, the finished product. Approximately 10% of all Ammoniol is lost through spillage and evaporation (the 4.86 quarts in the actual content per bottle after evaporation and spillage). In addition, statistics show that every 26th bottle is rejected at final inspection.

Required: (1) Compute the standard price for one quart of Ammoniol.

(2) Compute the standard quantity in quarts per saleable bottle of Ace Zappo.

(3) Compute the standard cost of Ammoniol per saleable bottle of Ace Zappo.

Note:Show your work. Also, for consistency, please round your answers in all parts of the problem, (1) – (3), to two decimal places. Examples are $7.46, for (1) and (3), and 8.42 quarts for part (2).

  1. Direct Material, Direct Labor and Variable Manufacturing Overhead Variances

Landram Corporation makes a product with the following standard costs:

In March the company produced 4,700 units using 10,230 kilos of the direct material and 2,210 direct labor-hours. During the month, the company purchased 10,800 kilos of the direct material at a cost of $76,680. The actual direct labor cost was $38,233 and the actual variable overhead cost was $11,934.

The company applies variable overhead on the basis of direct labor-hours. The direct materials purchases variance is computed when the materials are purchased

Compute the materials quantity variance, materials price variance, labor efficiency variance,

Labor rate variance, variable overhead efficiency variance and variable overhead rate


3. Future and Present Value Calculations

A. Mark J. is due to receive a cash stipend of $80,000 from a family trust at the end of five years. A relative has offered to purchase Mark’s interest in the trust fund. If Mark’s investment rate is 10%, what is the minimum amount that he should accept today for the $80,000 interest?

B. Maria H. has decided to deposit $3,000 per year in a savings certificate account for the next 20 years. If the account is able to earn 6% per year during that time, how much will accumulate in the account at the end of the 20 years?

C. Lucy G. has the opportunity to buy a property from which she can earn $15,000 per year in rental income for a period of 10 years. If Lucy’s investment rate is 12% per year, what is the maximum amount that she would be willing to pay today and still meet her investment criterion?

D. Andrew M. has $20,000 to invest. How much money will Andrew have at the end of 30 years if the $20,000 lump sum is put into a retirement account and allowed to earn 8% per year for a period of 30 years?

4. Capital Budgeting Methods

Roosevelt Corporation is considering the acquisition of machinery and equipment at a cost of $500,000. No new working capital is required to support the new equipment. The equipment has an estimated useful life of five years and a salvage value of $0. Roosevelt Corporation uses the straight-line method of depreciation. The new equipment is expected to provide an annual net cash flow benefit of $170,000 per year during the five-year period of its useful life.

Required:Evaluate the investment using each of the four methods of capital budgeting:

(1) The net present value method.The company’s desired minimum rate of return for discounted cash flow analysis is 18%. If there is a salvage value on the equipment purchased, do not forget to include that factor in your analysis.

(2) The internal rate of return method to the nearest whole percent.Calculate the factor, and then scan the appropriate line on the applicable table to state the answer to the nearest whole percent.

(3) The payback or cash payback method.Please state your answer in number of years, and round to two decimal places.

(4) The simple rate of return method (ARR).Remember to consider the effect of the depreciation on the net income from the investment. If the percentage return does not come out even, state your answer to the nearest tenth of a percent; that is, to three decimal places.

  1. Pay Back Method

What is the payback period for the following project?

Year Inflow/(Outflow)

  1. ($38,000)
  2. $ 8,000
  3. $ 9,000
  4. $ 12,000
  5. $ 7,000
  6. $ 8,000
  7. $ 5,000

7 $ 3,000

6. ROI & Investment Analysis

Assume the Air Conditioning division of the General Appliance Corporation had the following results last year (in thousands). Management’s target rate of return is 15% and the weighted average cost of capital is 10%. Its effective tax rate is 35%.


$ 10,000,000

Operating income


Total assets


Current liabilities


What is the division’s sales margin?

What is the division’s sales Return on Investment?

What is the division’s Capital Turnover?

What is the division’s Residual Income?

  1. Budget Variance Analysis

Hertzler Corporation uses customers served as its measure of activity. During November, the company budgeted for 23,000 customers, but actually served 25,000 customers. The company uses the following revenue and cost formulas in its budgeting, where q is the number of customers served:

Revenue: $7.25q
Wages and salaries: $30,500 + $2.30q
Supplies: $0.80q
Insurance: $6,200
Miscellaneous: $8,750 + $0.30q
The company reported the following actual results for November:


Prepare a net income report showing the company’s revenue and spending variances for November. Label each variance as favorable (F) or unfavorable (U).Make sure it is formatted based on an income statement and show the actual and the budgeted side by side. (2 questions in 1 – Create Budget, then Compare Budget with Actual results, which will allow to figure the amount of variance and if it is Favorable or Unfavorable)

test on: activity variance analysis, revenue and spending variance allowances, flex budget variances analysis, ROI analysis, Calculation of standard cost, Future and Present value problems, Capital budgeting analysis