QUESTION FOUR (25 MARKS) a) Lombard Berhad has two investment centers and has de
ID: 2541304 • Letter: Q
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QUESTION FOUR (25 MARKS) a) Lombard Berhad has two investment centers and has developed the following information: RM120,000 Departmental controllable margin Average operating assets Sales ROI RM400,000 250,000 12% 800,000 10% Required (2 marks) (2 marks) ii. Compute Department B's new ROl if Department B is able to reduce its operatin i. Compute Department A's average operating assets ii. Compute Department B's controllable margin. assets by RM100,000 (3 marks) iv. Compute Department A's ROI if DepartmentA margin by RM60,000 as a result of reducing cost. (3 marks) b) Relawan Berhad. manufactures one product called tybos. The company uses a standard cos system and sells each tybo for RM8. At the start of monthly production, Relawan estimated that 9,500 tybos would be produced in March. Relawan has established the following material and labor standards to produce one tybo: Direct materials Direct labor 2.5 pounds 0.6 hours RM3 per pound RM10 per hour During March 2016, the following activities were recorded by the company relating to the production of tybos: The company produced 9,000 units during the month. 2. 1. A total of 24,000 pounds of materials were purchased at a cost of RM66,000. 3. A total of 24,000 pounds of materials were used in production. 4. 5,000 hours of labor were incurred during the month at a total wage cost of RM55,000. Required Calculate the following variances for March for Relawan Berhad a) Materials price variance b) Materials quantity variance (c) Labor price variance (d) Labor quantity variance (3.5 marks) (4 marks) (3.5 marks) (4 marks) End of paperExplanation / Answer
Answer a
a(i) Department A's Average Operating asset
ROI = Controllable Margin / Average Operating Asset * 100
Therefore, Average Operating Asset = Controllable Margin / ROI *100 = 120,000 / 10 * 100 = 1,200,000
a(ii) Department B's Controllable Margin
Controllable Margin = ROI * Average Operatinf Asset/100 = 12 * 400000 / 100 = 48000
a(iii) Revised ROI of Department B
New average operating asset = 300,000
It is assumed that because of change in average operating asset, there is no change in controllable margin
Revised ROI = 48,000 / 300,000 *100 = 16%
a(iv) Revised ROI of Department A
Controllable Margin = 120,000 + 60,000 = 180,000
Average operating asset = 1,200,000
Revised ROI = 180,000 / 1,200,000 *100 = 15%
Answer b
a. Material Price Variance:
Actual Price per pound of Direct Material = 66,000/24000=2.75
Material Price Variance = Actual Quantity used * ( Standard Price per unit - Actual Price per unit) = 24000*(3-2.75) = 6,000 Favourable
b. Material Quantity Variance:
Stanadard Quantity required for producing 9,000 units = 9,000 * 2.5 = 22,500 pounds
Material Quantity Variance = Standard Price per unit * (Standard Quantity required - Actual Quantity used) = 3*(22500-24000) = (4,500) Unfavourable
c. Labour Price Variance:
Actual rate per hour of Direct labour = 55,000/5000=11
Labour Price Variance = Actual Labour Hour used * ( Standard rate per unit - Actual rate per unit) = 5000*(10-11) = (5,000) Unfavourable
d.Labour Quantity Variance:
Stanadard labours required for for producing 9,000 units = 9,000 * 0.6 = 5,400 Labour Hours
Labour Quantity Variance = Standard rate per unit * (Standard labour hours required - Actual labour hours used) = 10*(5400-5000) = 4,000 Favourable
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