Blue Gum Ltd uses a standard costing system. The firm estimates that it will operate its manufacturing facilities at 800000 machine hours for the year. The estimate for total budgeted overhead is $2000000. The standard variable overhead rate is estimated to be $2 per machine hour, or $6 per unit. The actual data for the year are presented below:

Actual units produced250000

Actual machine hours764000

Actual variable overhead$1701000

Actual fixed overhead$ 392000

Required:

Calculate the following variances, indicating whether each variance is favourable or unfavourable:

a)variable overhead spending variance

b)variable overhead efficiency variance

c)fixed overhead budget variance

d)fixed overhead volume variance.

Question five

Melbourne Ltd has three divisions their activities are explained below:

I.Home plumbing divisionmanufactures copper pipes for tradespersons and home renovators. These areas of the economy are in decline. The home plumbing division is operating with spare capacity and is using machinery that was acquired many years ago.

II.The industrial pipes divisionproduces pipes for heavy manufacturing industries involved in chemical refining and gas exploration. This division is machine intensive, using advanced computerised equipment to manufacture pipes to precise tolerance levels.

III.The hardware divisionoperates a hardware store.

The following data relate to the three divisions of the company. The company's minimum required rate of return is 8 per cent.

Home plumbing divisionIndustrial pipes divisionHardware division

Sales revenue$25 000 0005 000 0002 000 000

Profit$5 000 000$1 000 0005 00 000

Average investment$10 000 000$7 936 5084 000 000

Required:

1.For each division calculate:

a.Return on sales

b.Investment turnover

c.ROI

d.Residual income

2.Does ROI provide a suitable basis for comparing the performance of these three divisions? Explain your answer.