Question

Virginia Company, a merchandising firm, operated 5 sales offices last year at a total cost of...

Virginia Company, a merchandising firm, operated 5 sales offices last year at a total cost of \$610,000, of which \$81,000 represented fixed costs. Virginia has determined that total costs are significantly influenced by the number of sales offices operated. Last year's costs and number of sales offices can be used as the basis for predicting annual costs. What would be the budgeted cost for the coming year if Virginia were to operate 7 sales offices? (CPA adapted)

Adair Credit, Inc. has \$46.0 million in consumer loans with an average interest rate of 12.0%. The company has \$41.0 million in home equity loans with an average interest rate of 8.0%, and owns \$5.0 million in corporate securities with an average interest rate of 6%. Next year, consumer loans are estimated to increase to \$51.0 million because of a rate decrease to 10.0%, while home equity loans are estimated to increase to \$43.0 million at an average interest rate of 6.5%. Unfortunately, the investment in corporate securities is estimated to decrease by 20% and the average interest rate is estimated to be 9.0%. What is Adair's estimated change in revenues next year?

Rack Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor budget indicates that 4,800 direct labor-hours will be required in September. The variable overhead rate is \$6.80 per direct labor-hour. The company's budgeted fixed manufacturing overhead is \$62,400 per month, which includes depreciation of \$6,650. All other fixed manufacturing overhead costs represent current cash flows. The company recomputes its predetermined overhead rate every month. The predetermined overhead rate for September should be:

Ans 1)

Total Cost of Operating 5 Sales office last year = \$610,000

Fixed Cost (included in above) = \$81,000

Therefore, Variable vost for 5 offices = \$529,000 (\$610,000 - \$81,000)

Variable Cost for 1 office = \$105,800

Hence, Budgeted Cost to perate 7 sales ofices = \$105,800 * 7 + \$81,000

= \$821,600

Ans 2)

Calculation of Revenue in Current Year

= [(\$46m * 12%) + (\$41m * 8%) + (\$5m * 6%)

= \$9,100,000

Calculation of Revenue in Next Year

= [(\$51m * 10%) + (\$43m * 6.5%) + (\$5m * 80% * 9%)

= \$8,255,000

Change in Revenue = \$845,000 (Decrease)

Ans 3) Calculation of Pre determined Overhead Rate for September

= Variable Overhead Rate + (Budgeted Fixed Manufacturing Overhead / Direct Labour Hours)

= \$6.80 + (\$62,400 / 4,800)

= \$19.80

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