Question

Q5 Amos Manufacturing has two major departments. Management wants to compare their relative performance. Information related to the two departments is as follows:

Department 1:
Sales:	$400,000
Expenses:	250,000
Asset investment:	950,000
Department 2:
Sales:	$75,000
Expenses:	45,000
Asset investment:	400,000

Which department is most efficient at using their operating assets to generate sales (asset utilization)?

a. Department 1

b. Department 2

c. Both departments have the same asset utilization

Q6 Amos Manufacturing has two major departments. Management wants to compare their relative performance. Information related to the two departments is as follows:

Department 1:
Sales:	$400,000
Expenses:	250,000
Asset investment:	950,000
Department 2:
Sales:	$75,000
Expenses:	45,000
Asset investment:	400,000

Amos currently requires investments to meet a rate of return on asset investment of 7%. Which division has the greatest level of “residual income”?

a. Department 1

b. Department 2

c. Both departments have the same residual income

Q7

Budgeted Production:	7,000 units
Standard Direct Labor rate:	$20/hour
Standard Direct Labor usage:	6 hours/unit
Standard Direct Material price:	$1,300/cart
Standard Direct Material usage:	0.25 cart/unit
Standard Variable Overhead rate:	$25/direct labor hour
Actual Production:	6,800 units
Actual Direct Labor rate:	$24/hour
Actual Direct Labor Usage:	23,000 hours
Actual Direct Material price:	$890/cart
Actual Direct Material usage:	1,200 carts (amounts used and purchased are the same)
Actual Variable Overhead incurred:	$900,000

What is the Direct Material Static Budget Variance?

a. $1,068,000 Favorable

b. $1,207,000 Favorable

c. $2,275,000 Favorable

d. $3,068,000 Favorable

Q8 What is capital budgeting?

a. Planning short-term investments in productive assets

b. Planning long-term investments in productive assets

c. Planning long-term investments in current liabilities

d. None of the above

Answer 1

Q5	Department 1
	Return on Investment	= Net Income / Asset Investment
		= ( 400,000 - 250,000 ) / 950,000
		= 150,000 / 950,000
		= 15.79%
	Department 2
	Return on Investment	= Net Income / Asset Investment
		= (75,000 - 45,000 ) / 400,000
		= 30,000 / 400,000
		= 7.5%
	Department 1 is more efficient.
	Correct answer is option a .
Q-6	Department 1
	Residual Income	$ 83,500	(150,000 - ( 950,000 x 7%) )
	Department 2
	Residual Income	$ 2,000	(30,000 - ( 400,000 x 7%) )
	Department 1 has highest residual Income.
	Correct answer is option a .
Q-7	Direct material Static Budget Variance
		Amount $
	Budgeted Cost of Materials at Budgeted production	2,275,000	(7,000 x 0.25 x 1,300 )
	Less: Actual Direct material Cost for actual production	1,068,000	(1,200 x 890 )
	Direct material Static Budget Variance	1,207,000	Favorable
	Correct answer is option b ( i.e. $ 1,207,000 Favorable).
Q-8	Capital budgeting is describes as planning for long term investment in Productive assets.
	Correct answer is option b .