P25-2A
Simon Manufacturing Corporation accumulates the following data relative to jobs started and finished during the month of June 2012.
Costs & Production Data Actual Standard
Raw materials unit cost $2.25 $2.00
Raw materials units used 10,600 10,000
Direct labor payroll $122,400 $120,000
Direct labor hours worked 14,400 15,000
Manufacturing overhead incurred $184,500
Manufacturing overhead applied $189,000
Machine hrs expected to be used at normal capacity 42,500
Budgeted fixed overhead for June $51,000
Variable overhead rate per hour $3.00
Fixed overhead rate per hour $1.20
Overhead is applied on the basis of standard machine hours. Three hours of machine time are required for each direct labor hour. The jobs were sold for $400,000. Selling and administrative expenses were $40,000. Assume that the amount of raw materials purchased equaled the amount used.
1) Compare all the variances for (1) direct materials and (2) direct labor.
2) Compute the total overhead variance
3) Prepare an income statement for management. Ignore income taxes.
P26-5A
Verdugo Corporation is considering three long-term capital investment proposals. Relevant data on each project are as follows.
Project
BrownRed Yellow
Capital Investment $190,000 $220,000 $250,000
Annual net income:
Year 1 25,000 20,000 26,000
Year 2 16,000 20,000 24,000
Year 3 13,000 20,000 23,000
Year 4 10,000 20,000 17,000
Year 5 8,000 20,000 20,000
Total $ 72,000 100,000 110,000
Salvage value is expected to be zero at the end of each project. Depreciation is computed by the straight line method. The Company's required rate of return is the company's cost of capital whish is 12%.
1) Compute the annual rate of return for each project. (round to one decimal)
2) Compute the cash payback period for each project. (round to two decimals)
3) Compute the net present value for each project. (round to nearest dollar)
4) Rank the projects on each of the foregoing bases. Which project do you recommend?
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