1a. Roman Mfg.'s July production involved actual direct labor costs of $61,686 for 4,600 direct labor hours. The budget for the July level of production called for 4,700 direct labor hours at $13.40 per hour, using a standard cost system.

Roman's labor rate variance for July is:

Multiple Choice

• $1,294 favorable.

• $1,294 unfavorable.

• $46 unfavorable.

• $1,340 favorable.

1.b Roman's labor efficiency variance for July is:

Multiple Choice

• $46 unfavorable.

• $1,340 favorable.

• $1,294 unfavorable.

• $1,294 favorable.

2. Helicopter Gear is planning to expand its product line, which requires investment of $396,500 in special-purpose machinery. The machinery has a useful life of five years and no salvage value. The estimated annual results of offering the new products are as follows:

Revenue	$ 528,500
Expenses (including straight-line depreciation)	(502,000)
Increase in net income	$ 26,500

All revenue from the new products and all expenses (except depreciation) will be received or paid in cash in the same period as recognized for accounting purposes.

The payback period for this proposed investment is:

Multiple Choice

• 5.0 years.

• 1.9 years.

• 3.7 years.

• 7.5 years.

3. The Terme Corporation is contemplating the purchase of new equipment, which may potentially increase revenues by 25%. Currently, sales are $820,000 per year and cost of sales are 60% of sales. The equipment is expected to last for 6 years with no residual value. The cash outflow expected at the beginning of the year is $433,200.

By how much would Termes annual gross profit increase if the investment is undertaken?

Multiple Choice

• $820,000

• $123,000

• $82,000

• $205,000