Bianca Bicycle Company manufactures mountain bikes with a variable cost of $200. The bicycles sell for $350 each. Budgeted fixed manufacturing overhead for the most recent year was $2,200,000. Planned and actual production for the year were the same.Required: Under each of the following conditions, state (a) whether operating income is higher under variable or absorption costing and (b) the amount of the difference in reported operating income under the two methods. Treat each condition as an independent case. 1. Production ..................................................... 20,000 unitsSales .............................................................. 23,000 units2. Production ..................................................... 10,000 unitsSales .............................................................. 10,000 units3. Production ..................................................... 11,000 unitsSales .............................................................. 9,000 units
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.
Bianca Bicycle Company manufactures mountain bikes with a variable cost of $200. The bicycles sell for $350 each. Budgeted fixed manufacturing
Required: Under each of the following conditions, state (a) whether operating income is higher under variable or absorption costing and (b) the amount of the difference in reported operating income under the two methods. Treat each condition as an independent case.
1. Production ..................................................... 20,000 units
Sales .............................................................. 23,000 units
2. Production ..................................................... 10,000 units
Sales .............................................................. 10,000 units
3. Production ..................................................... 11,000 units
Sales .............................................................. 9,000 units
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