1)Chaucer Ltd. has current assets of $450,000 and capital assets of $630,000. Its budgeted production volume for the next fiscal year is 200,000 units. Fixed costs are projected at $400,000 and variable unit costs for the one product produced total $5/unit. The company defines ROI as Operating Income/Total Assets and its required rate of return is 14%. Prepare a brief memo to the President of Chaucer outlining the advantages and disadvantages of ROI and Residual Income. Include your recommendations for the most appropriate method for calculating the bonus.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
1)Chaucer Ltd. has current assets of $450,000 and capital assets of $630,000. Its budgeted production
volume for the next fiscal year is 200,000 units. Fixed costs are projected at $400,000 and variable unit
costs for the one product produced total $5/unit. The company defines ROI as Operating Income/Total
Assets and its required
Prepare a brief memo to the President of Chaucer outlining the advantages and disadvantages of ROI and
Residual Income. Include your recommendations for the most appropriate method for calculating the
bonus.
Step by step
Solved in 3 steps
