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- Download: http://solutionzip.com/downloads/international-finance-incorporated/
- International Finance Incorporated issues
- letters of credit to importers for overseas purchases. The company charges a nonrefundable
- application fee of $3,000 and, on approval, an additional service fee of 2% of the amount of
- credit requested.
- The firm’s budget for the year just completed included fixed expenses for office salaries and
- wages of $500,000, leasing office space and equipment of $50,000, and utilities and other operating expenses of $10,000. In addition, the budget also included variable expenses for supplies
- and other variable overhead costs of $1,000,000. The company estimated these variable over-
- head costs to be $2,000 for each letter of credit approved and issued. The company approves,
- on average, 80% of the applications it receives.
- During the year, the company received 600 requests and approved 75% of them. The total
- variable overhead was 10% higher than the standard amount applied; the total fixed expenses
- were 5% lower than the amount budgeted.
- In addition to these expenses, the company paid a $270,000 insurance premium for the letters
- of credit issued. The insurance premium is 1% of the amount of credits issued in U.S. dollars.
- The actual amount of credit issued often differs from the amount requested due to fluctuations
- in exchange rates and variations in the amount shipped from the amount ordered by importers.
- The strength of the dollar during the year decreased the insurance premium by 10%.
- Required
- 1. Calculate the (a) variable, and (b) fixed overhead rates for the year.
- 2. Prepare an analysis of the overhead variances for the year just completed. (a) What is the total
- controllable (i.e., flexible-budget) variance for the period? (b) What is the overhead volume variance for the period? ( Hint: These two should sum to $88,000U.)
- Download: http://solutionzip.com/downloads/international-finance-incorporated/
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