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Question num. 5.
2 investment are available
Investment P offers interest of 5% per year compounded half yearly for a period of 4 years.
Q offers one interest payment of 18% at te end of its 4 year life.
What is the annual effective interest rate offered by each of the 2 investment?
Answer
Investment P: 5.06%
InvestmentQ: 4.22%
Need an explanation how to do it.
Effective Interest Rate & Standard Costing
Q25.
A company uses standard marginal costing sysytem.The following figures are available for the last accounting period in which the profit was $124,000
Sales contribution variance $9,000(F)
Sales price variance $8,000(A)
Total variable cost variance $13,000(F)
Fixed cost expenditure variance $14,000(A)What was the standard profit for the actual sales in the last accounting period?
A.$125,000 B.$.114,000 C.$134,000 D.$.123,000
Answ: D (explanation how to the calculation)First question:
P: The interest is 5/2 = 2.5% every six months. Therefore the annual rate is 1.025^2 – 1 = 1.050625 (or 5.0625%)
Q: If the annual rate is R, then (1+R)^4 = 1.18
So R = (fourth root of 1.18) – 1 = 0.0422 (or 4.22%)Second question:
You have copied the question wrongly. The fixed overhead variance is 4,000 (not 14,000)
If you go backwards from the actual profit, then the standard profit = 124,000 + 8,000 – 13,000 + 4,000 = 123,000
(The sales volume contribution variance is not relevant because you are asked for the standard profit on actual sales – not for the budgeted profit.)
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