Question

1. The Company's actual manufacturing costs for the month of May totaled $144,000, while the budgeted manufacturing costs were $162,000. Comparison of the budgeted costs with actual amounts: a is not significant unless the budgeted and actual figures are based upon the same level of production. b Demonstrates that the Manufacturing Department operated very efficiently during May. C Indicates that production cost per unit was 10% below budgeted cost per unit. d Indicates that the Company produced only 90% of the number of units budgeted for production in May. 2. A flexible budget is used to evaluate: a Costs that should have been incurred for a level of output achieved. b Costs that should have been incurred for a level of output considered to be normal. c How variable unit costs change as output changes. d How flexible management was at adapting to changes in business conditions. 3. The following information regarding Baron Company is available: Sales ............. $264,000 $99,000 Cost of sales .............. Operating expense.. Operating earnings ......................... $ 66,000 Average invested capital........... $660,000 ROI......................................... Return on sales ............. Capital turnover ..... Compute the answers for items A-D.

Answer 1

1) Ans: ( A) is not significant unless the budgeted and actual figures are based upon the same level of production .

Explanation:

( on the basis of budgeted and actual we can not comment about the efficiency, or per unit cost.Comparision is not of much use until both figures are equal.)

2) Ans: (a) Costs that should have been incurred for a level of output achieved.

( Flexible budget calculate the cost for actual production but at budgeted rates.so its evaluate what cost should have been incurred for actual level of output.)

3) A. Operating Expense

Sales	$ 264,000
Less: Cost of sales	( $99,000)
Gross Margin	$ 165000
Less: Operating Expense (?)	$99,000
Operating Income	$66,000

Op expense :

= $ 165000 - $ 66,000

=$ 99,000

B.ROI

= Income÷ Avg. Invested Capital

= $66,000 ÷ $ 660,000

= 10%

C.Return on Sales:

= Op. income ÷ Sales

= $ 66000 ÷ $ 264,000

= 25%

D. Capital turnover.

= Sales ÷ Avg invested capital

= $ 264,000 ÷ 660,000

= 40%