Question

16. The following information is available for Kiss Company: Sales $ 101,500 Operating expenses $ 95,000...

16. The following information is available for Kiss Company:

Sales $ 101,500
Operating expenses $ 95,000
Operating assets $ 42,500
Stockholder’s equity $ 25,500
Cost of capital 8 %

What is Kiss Company's residual income?

$4,460.

$3,400.

$3,100.

$2,040.

17.

Actual machine hours 920
Standard machine hours allowed 1,060
Denominator activity (machine hours) 1,185
Actual fixed overhead costs $ 5,500
Budgeted fixed overhead costs $ 5,925
Predetermined overhead rate ($1 variable + $5 fixed) $ 6

What is the production volume variance?

$840.

$425.

$625.

$700.

18. You have been provided with the following information for Division X of a decentralized company:

Selling price $ 85
Variable cost per unit 73
Fixed cost per unit 25
Sales volume (units) 23,500
Capacity (units) 26,400


Division Y of the same company would like to purchase all of its units internally. Division Y needs 8,700 units each period and currently pays $79 per unit to an outside firm. What is the lowest price that Division X could accept from Division Y? (Assume that Division Y wants to use a sole supplier and will not purchase less than 8,700 from a supplier.)

$85.

$81.

$79.

$73.

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Answer #1

16. Kiss Company's residual income : $ 3,100.

Operating income = Sales - Operating Expense = $ 101,500 - $ 95,000 = $ 6,500.

Residual income = $ 6,500 - $ ( 42,500 x 8 % ) = $ 3,100.

17. Production volume variance : $ 625

Production volume variance = (Budgeted machine hours - Standard hours allowed ) x $ 5 = ( 1,185 - 1,060) x $ 5 = $ 625

18. Lowest acceptable price for Division X : $ 85

Lowest accept price for division X = Variable Manufacturing Cost per Unit + Opportunity cost of Contribution Lost = $ 73 + 5.800 x $ ( 85 - 73 ) / 5,800 = $ 85

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