1O. A corporation has a standard cost system in which it applies manufacturing o

Question

1O. A corporation has a standard cost system in which it applies manufacturing overhead to products on the basis of standard machine hours (MHs). The company has provided the following data for the most recent month: Budgeted level of activity Actual level of activity. Standard variable manufacturing overhead rate$5.90 Actual total variable manufacturing overhead.. 7.400 MHs 7.500 MHs per MH $42,750 What was the variable overhead rate variance for the month? A. $1,500 F B. $590U C. $910 F D. $1,000 U 11. Managerial performance can be measured in many different ways including return on investment (RO) and residual income. A good reason for using residual income instead of ROI is: A. Residual income can be computed without having to measure operating assets. B. Managers are more likely to accept projects that are beneficial to the company. C. ROI does not take into account both turnover and margin D. A minimum rate of return does not have to be specified when the residual income approach is used. 12. Given the following data: verage operating asset... $250,000 Total liabilities Sales Contribution margin..$150,000 Net operating income.$30,000 $100,000 Return on investment (ROI) would be: A. 5% B. 12% C. 25% D. 6096

Explanation / Answer

Part 1 - calculation of variable overhead rate variance

Revised standard activity with respect to actual activity (flexible budget)

Variable manufacturing overhead

Formulae = (Standard rate - Actual rate) * Actual level of activity

($5.9 - $5.7)*7500 = $1500 Favourable

Part -2 Answer is option (B)

Explanation = Divisional managers often dislike the ROI because choosing ROI can lead to benefiting the division but adverse against the company as a whole.

In case of ROI, managers often down the investment proposal which has ROI less than division ROI and exceed the company's ROI.

Hence, A GOOD REASON FOR CHOOSING THE RESIDUAL INCOME APPROACH IS THAT MANAGERS WILL LIKELY ACCEPT THE PROJECTS WHICH BENEFITS THE COMPANY AS A WHOLE

Part 3 - return on investment calculation

Under managerial accounting ROI (return on investment) is generating operating income as percentage to operating assets during the business period.

Particulars Amount Actual rate Actual variable manufacturing overhead / actual level of activity Actual rate $42750/7500 = $5.7

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