Barnes Company reports the following operating results for the month of August: sales $315,000 (units 5,000); variable costs $225,000; and fixed 671
Barnes Company reports the following operating results for the month of August: sales $315,000 (units 5,000); variable costs $225,000; and fixed 671
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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.
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Transcribed Image Text:Barnes Company reports the following
operating results for the month of
August: sales $315,000 (units 5,000);
variable costs $225,000; and fixed
costs $71,100. Management is
considering the following independent
courses of action to increase net
income. Compute the net income to
be earned under each alternative.
1)Increase selling price by 10% with no
change in total variable costs or sales
volume.
Net income=
2) Reduce variable costs to 56% of
sales.
Net Income =
3) Reduce fixed costs by $21,000.
Net Income=
Which course of action will produce
the highest net income?
Alternative1
Alternative2
Alternative3
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