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The president of Ravens Inc. attended a seminar about the contribution margin model and returned to her company full of enthusiasm about it. She requested
The president of Ravens Inc. attended a seminar about the contribution margin model and returned to her company full of enthusiasm about it. She requested that last year's traditional model income statement be revised, and she received the following report: Division Sales Variable expenses Contribution margin Fixed expenses Net income (loss) Total Company $442,000 247,000 $195,000 145,000 $ 50,000 A $174,000 102,000 $ 72,000 47,000 $ 25,000 B $114,000 62,000 $ 52,000 55,000 $ (3,000) $154,000 83,000 $ 71,000 43,000 $ 28,000 The president was told that the fixed expenses of $145,000 included $84,000 that had been split evenly between divisions because they were general corporate expenses. After looking at the statement, the president exclaimed, "I knew it! Division B is a drag on the whole company. Close it down!" Required: a. Evaluate the president's remark. The president's remark ignores the misleading result of arbitrarily allocated fixed expenses. The president's remark ignores the misleading result of arbitrarily allocated variable expenses. b. Calculate what the company's net income would be if Division B were closed down. Net income without Division B The standards for one case of liquid weed killer are as follows: Direct materials Direct labor Variable overhead (based on machine hours) 8 lb @ $9.75/16 4.7 hr @ $20.8/hr 1.6 hr @ $7.15/hr During the week ended May 6, the following activity took place: 5,198 machine hours were worked. 27,634 lb of raw material were purchased for inventory at a total cost of $274,958. 3,420 cases of finished product were produced. 27,219 lb of raw material were used. 15,720 labor hours were worked at an average rate of $21.13 per hour. $35,866 actual variable overhead costs were incurred. Required: Calculate each of the following variances. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (.e., zero variance).) a. Price variance for raw materials purchased. b Raw materials usage variance. c. Direct labor rate variance. d. Direct labor efficiency variance. e. Variable overhead spending variance f. Variable overhead efficiency variance
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