Blue Devil Corporation produces a single product and has the following cost structure: Number of units produced each year 4,000 Manufacturing costs: Direct materials PER UNIT $50 Direct labor PER UNIT $72 Variable manufacturing overhead PER UNIT $6 Total fixed manufacturing overhead $296,000 Operating expenses per year: Variable operating expenses $12,000 Fixed operating expense $76,000 Required: d. If Blue Devil sells 3,500 units of product in this year at $320 unit selling price, please calculate the profit or loss under the variable costing. e. If next year Blue Devil plans to produce 5,000 units and sell 5,500 units, which costing method generates the higher profit? Show your work.
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.
Blue Devil Corporation produces a single product and has the following cost structure:
|
Number of units produced each year |
4,000 |
|
|
|
|
Direct materials PER UNIT |
$50 |
|
Direct labor PER UNIT |
$72 |
|
Variable manufacturing |
$6 |
|
Total fixed manufacturing overhead |
$296,000 |
|
Operating expenses per year: |
|
|
Variable operating expenses |
$12,000 |
|
Fixed operating expense |
$76,000 |
Required:
d. If Blue Devil sells 3,500 units of product in this year at $320 unit selling price, please calculate the profit or loss under the variable costing.
e. If next year Blue Devil plans to produce 5,000 units and sell 5,500 units, which costing method generates the higher profit? Show your work.
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