ivision Cleaning Products Division Sales $34,620,000 $31,340,000 Operating income 2,397,700 1,254,300 Operating assets, January 1 6,400,000 5,760,000 Operating assets, December 31 7,590,000 6,640,000 Forchen, Inc., requires an 8 percent minimum rate of re
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.
Calculating Residual Income Forchen, Inc., provided the following information for two of its divisions for last year:
Small Appliances Division Cleaning Products Division
Sales $34,620,000 $31,340,000
Operating income 2,397,700 1,254,300
Operating assets, January 1 6,400,000 5,760,000
Operating assets, December 31 7,590,000 6,640,000
Forchen, Inc., requires an 8 percent minimum
1. Calculate residual income for the Small Appliances Division. $
2. Calculate residual income for the Cleaning Products Division. $
3. What if the minimum required rate of return was 9 percent? How would that affect the residual income of the two division?
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