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27. Compute variances for the items shown in the following list and indicate whether each variance is favorable (F) or unfave
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Answer-27-

Item    Budget    Actual Variance Effect
Selling and administrative expenses $29,000 $47,000 18,000 Unfavorable
Sales revenue 370,000 325,000 45,000 Unfavorable
Materials Price $2.00 per lb. $2.20 per lb $0.20 per lb. Unfavorable
Cost of goods sold $125,000 $100,000 25,000 Favorable
Material Purchases $250,000 $265,000 15,000 Unfavorable
Materials Usage 6,000 lbs. 5,800 lbs. 200 Favorable
Sales Price $550 each $500 each 50 Unfavorable
Labor Rate $8.10 per hour $7.95 per hour 0.15 Favorable
Production Volume 950 units 900 units 50 Unfavorable
Labor usage $1,066,000 $97,000 969,000 Unfavorable
Research and Development expenses $22,000 $22,000 0 No Variance

28 The payback period for the van = Cost of the van / The amount of expected revenue per year

a- =$24,000/$12,000

=2 years

The payback period for the car = Cost of the car / The amount of expected revenue per year

=$16,000/$10,000

=1.6 years

b-Average annual profit over the expected useful life of van =Expected revenue- Depreciation on van

=$12,000- ($24,000/ 5)

=$12,000-$4,800

=$7,200

Average amount of investment in the van= $24,000/2

=$12,000

Therefore, Unadjusted rate of return based on the average cost of investment= $7,200/ $12,000 *100

=60%

-Average annual profit over the expected useful life of car =Expected revenue- Depreciation on car

=$10,000- ($16,000/ 3)

=$10,000-$5,333

=$4667

Average amount of investment in the car= $16,000/2

=$8,000

Therefore, Unadjusted rate of return based on the average cost of investment= $4,667/ $8,000 *100

=58.34%

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