Answer:
Direct Material Price Variance = $300 Favorable
Explanation:
Direct Material Price Variance = (Standard Price - Actual Price) Actual Quantity
Standard Price = $4 per pound
Actual Price = =
Since the actual price is less than the standard price the variance will be favorable as the amount paid for actual use is less then the estimated standard cost.
Thus, direct material price variance = ($4 - $3.8) 1,500
= $300 Favorable
Answer:
2.36 years
Explanation:
Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash flows.
To derive cash flows from net income, depreciation expenses should be added to net income.
Depreciation expense using the double declining method = Depreciation factor x cost of the asset
Depreciation factor = 2 x (1/useful life) = 2 / 5 = 0.4
Deprecation expense in year 1 = 0.4 x $202,000 = $80,800
Book value in year 2 = $202,000 - $80,800 = $121,200
Deprecation expense in year 2 = 0.4 x $121,200 = $48,480
Book value in year 3 = $121,200 - $48,480 = $72,720
Deprecation expense in year 3 = 0.4 x $72,720 = $29,088
Book value in year 4 = $72,720 - $29,088 = $43,632
Deprecation expense in year 4 = $43,632 x 0.4 = $17,452.80
Book value in year 5 = $43,632 x 0.4 - $17,452.80 = $26,179.20
Deprecation expense in year 5 = $26,179.20 x 0.4 = $10,471.68
Cash flow in year 1 = $18,000 + $80,800 = $98,800
Cash flow in year 2 = $25,000 + $48,480 = $73,480
Cash flow in year 3 = $53,000 + $29,088 = $82,088
Cash flow in year 4 = $58,000 + $17,452.80 = $75,452.80
Cash flow in year 5 = $108,000 + $10,471.68 = $118,471.68
Please check the attached image for how the payback period was calculated
