Accounting homework questions Example

Essays on Accounting homework questions Assignment Sur Finance and Accounting May 11, Variance analysis is a popular decision making aid in many organizations. The premise upon which the approach derives its support comes from the realization that a company’s performance is determinable through comparison of actual performance with budgeted performance. Usually, a specific variance enables the management to understand whether a process is performing worse or better than was anticipated in the budget. Additional management tools include investment analysis tools such as net present value, by which the management can establish the most profitable investment areas of the business. This paper explores these management tools using practical real life cases from different corporations. 1. Activity Variances for June Revenue Variance = Actual Revenue – Planned Revenue = (53.40*3,100) – (53.40*2,600) = 165,540 – 138,840 = 26,700 (F) Personnel Expenses Variance = Actual - Planned = (39,700 + (12.60*3,100)) – (39,700 + (12.60*2,600)) = 39,060 – 32,760 = 6,300 (U) Medical Supplies Expenses Variance = Actual - Planned = (1,800 + (10.40*3,100)) – (1,800 + (10.40*2,600)) = 32,240 – 27,040 = 5,200(U) Occupancy Expenses Variance = Actual - Planned = (8,200 + (2.30*3,100)) – (8,200 + (2.30*2,600)) = 15,330 – 14,180 = 1,150(U) Administrative Expenses Variance = Actual - Planned = (6,100 + (0.20*3,100)) – (6,100 + (0.20*2,600)) = 6,720 – 6,620 = 100(U) Total Activity Variance = Actual - Planned = 26,700 – (6,300 + 5,200 + 1,150 + 100) = 26,700 – 12,750 = 13,950(F) 2. Efficiency variance for power cost Overheads Efficiency Variance = (Actual Hours*Overhead Rate) – (Standards Hours for actual Production*Overhead Rate) (Dalci Tanis, 81) =53,240*5.10 – 7,000*7.5*5.10 = 3,774(F) 3. Segmented income statement for the company (Accounting for Management, 1) Sales Channel Total Retail Wholesale Sales Revenues 740,000 500,000 240,000 Less: Variable Expenses Variable Expenses 346,000 245,000 101,000 Contribution Margin 394,000 255,000 139,000 Less: Fixed Costs Fixed Costs 152,000 79,000 73,000 Traceable Fixed Expenses 128,000 90,000 38,000 Total Fixed Costs 280,000 169,000 111,000 Profit Margins 114,000 86,000 28,000 4. a) Company’s income from processing a batch of the common input into X and Y Cost of common product = $71 Cost of processing = $10 Total production costs = $81 Revenue from Selling Products A and B: Sale of A = $29 Sale of B = $45 Total revenues = $74 The company makes $74 – $81 = -$7, For every batch of common product, the company makes a loss of $7 b) Selling each of the intermediate products, A and B as is vs. further processing Selling the intermediate products as they are incurs the company a loss of $7 per batch of common product. Hence, it worth considering alternative processing options. Total costs to produce the intermediate products (from previous calculation) = $81 Additional cost to make A into X = $14 Additional cost to turn B into Y = $29 Total cost for processing past the intermediate products = $124 Sale price of X = $39 Sale price of Y = $91 Total sales = $130 Total profit with additional processing = 130 – 124 = 6 The company would make a profit of $6 dollars per batch through further processing of the intermediary products. Selling the products at the intermediary stage makes the company a loss of $7. Therefore, further processing increases the company’s profit margin by $13 dollars a batch. Consequently, the product processed further into the final products X and Y for additional value. 5. Net present value of the project at 14% discount rate Cash outlay to fund the project: Direct investment $100,000 Cash savings in funding due to currently unused warehouse space: 0.25*200,000 = $50,000 Therefore, Actual investment cost = 100,000 – 50,000 = 50,000 Year Cash Flow Discount Factor (Given 14% discount rate (Boehlje Ehmke, 5) Present Value 1 17,000 0.8772 14,912.40 2 17,000 0.7695 13,081.50 3 17,000 0.6750 11,475.00 4 17,000 0.5921 10,065.70 5 17,000 0.5194 8,829.80 Present Value 58,364.40 Net Present Value = Present Value (of Net Cash Inflows) – Present Cash Outlay of the Project NPV = 58,364.40 – 50,000 = $8,364.40 The NPV of the project at 14% discount rate is $8,364.40 Whether to Accept or Reject the Project If is greater than zero (NPV0), the investment would be worthwhile, and therefore the project can be accepted. Since the NPV is positive, the project is worthwhile and is worth undertaking by the company, as it will result in accumulated earnings worth $8,364.40, according to the present value of money. The project will generate more cash inflow that will be the cost necessary to complete it. Works Cited Accounting for Management. Segment Reporting and Profitability Analysis-Segmented Income Statements. Accounting for Management. 2012. Web May 11, 2012 Boehlje, M and Ehmke, C. Capital Investment Analysis and Project Assessment. Purdue University. 2005. Pp. 3-5. Print. Dalci, I and Tanis, V. Activity-Based Variance Analysis: Another Approach to Overhead Costs Variance Analysis. Review of Economic and Business Studies. 2005. 9(10) Pp. 73-100. Print.