Performance Report Based on Actual Production Ladan Suriman, controller for Healthy Pet Company

Performance Report Based on Actual ProductionLadan Suriman, controller for Healthy Pet Company, has been instructed to develop a flexible budgetfor overhead costs. The company produces two types of dog food. BasicDiet is a standard mixture forhealthy dogs. SpecialDiet is a reduced protein formulation for older dogs with health problems. Thetwo dog foods use common raw materials in different proportions. The company expects to produce80,000 bags of each product during the coming year. BasicDiet requires 0.20 direct labor hours perbag, and SpecialDiet requires 0.30 direct labor hours per bag. Ladan has developed the following fixedand variable costs for each of the four overhead items:Overhead ItemMaintenanceVariable Rate perFixed CostDirect Labor Hour$57,250$0.50Power0.40Indirect labor43,500Rent2.1039,000Assume that Healthy Pet actually produced 100,000 bags of BasicDiet and 90,000 bags of SpecialDiet.The actual overhead costs incurred were as follows:MaintenancePower$81,30018,700Indirect labor$143,600Rent39,0001. Calculate the number of direct labor hours budgeted for actual production of the two products.direct labor hours2. Prepare a performance report for the period based on actual production. In the variance typecolumn, select “F” for favorable and “U” for unfavorable. If the variance is zero, enter (“0”) in thevariance amount column and “N” for neither in the variance type column.Healthy Pet CompanyPerformance ReportFor the Current YearActualBudgetedVariance$$$$$VarianceType (For U orN)$UnitsproducedProductionunit:MaintenancePowerIndirectlaborRentTotal costsResidual IncomeWashington Company has two divisions: the Adams Division and the Jefferson Division. The followinginformation pertains to last year’s results:Adams DivisionJefferson DivisionNet (after-tax) income$611,050$374,850Total capital employed4,440,0003,282,500In addition, Washington Company’s top management has set a minimum acceptable rate of returnequal to 9%.Required:Enter negative values as negative numbers.1. Calculate the residual income for the Adams Division.$2. Calculate the residual income for the Jefferson Division.$Return on Investment, Margin, TurnoverReady Electronics is facing stiff competition from imported goods. Its operating income margin hasbeen declining steadily for the past several years. The company has been forced to lower prices sothat it can maintain its market share. The operating results for the past 3 years are as follows:Year 1SalesYear 2Year 3$13,500,000Operating incomeAverage assets$ 9,500,000$ 9,000,0001,200,0001,145,000945,00015,000,00015,000,00016,250,000For the coming year, Ready’s president plans to install a JIT purchasing and manufacturing system. Sheestimates that inventories will be reduced by 70% during the first year of operations, producing a 20%reduction in the average operating assets of the company, which would remain unchanged without theJIT system. She also estimates that sales and operating income will be restored to Year 1 levelsbecause of simultaneous reductions in operating expenses and selling prices. Lower selling prices willallow Ready to expand its market share.(Note: Round all numbers to two decimal places.)Required:1. Compute the ROI, margin, and turnover for Years 1, 2, and 3.Year 1Year 2Year 3%%%%%%ROIMarginTurnover2. Conceptual Connection: Suppose that in Year 4 the sales and operating income were achieved asexpected, but inventories remained at the same level as in Year 3. Compute the expected ROI, margin,and turnover.%ROI%MarginTurnoverWhy did the ROI increase over the Year 3 level?The ROI increased because expenses increased and assets turned over at a lower rate (salesdecreased).The ROI increased because expenses decreased and assets turned over at a higher rate (salesincreased).3. Conceptual Connection: Suppose that the sales and net operating income for Year 4 remained thesame as in Year 3 but inventory reductions were achieved as projected. Compute the ROI, margin, andturnover.%ROI%MarginTurnoverWhy did the ROI exceed the Year 3 level?The ROI increased because assets decreased.The ROI increased because assets increased.4. Conceptual Connection: Assume that all expectations for Year 4 were realized. Compute theexpected ROI, margin, and turnover.%ROI%MarginTurnoverWhy did the ROI increase over the Year 3 level?The ROI increased because expenses decreased and assets turned over at a higher rate.The ROI increased because expenses increased and assets turned over at a higher rate.The ROI increased because expenses decreased and assets turned over at a lower rate.The ROI increased because expenses increased and assets turned over at a lower rate.

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