Cool Car Motors assembles and sells motor vehicles and uses standard costing. Actual data relating to April and May 2014 are as follows: The selling price per vehicle is $29,000. The budgeted level of production used to calculate the budgeted fixed manufacturing cost per unit is 500 units. There are no price, efficiency, or spending variances. Any production-volume variance is written off to cost of goods sold in the month in which it occurs. Requirements: Prepare April and May 2014 income statements for Cool Car Motors under (a) variable costing and (b) absorption costing. Prepare a numerical reconciliation and explanation of the difference between operating income for each month under variable costing and absorption costing.
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.
Cool Car Motors assembles and sells motor vehicles and uses
The selling price per vehicle is $29,000. The budgeted level of production used to calculate the budgeted fixed
Requirements:
Prepare April and May 2014 income statements for Cool Car Motors under (a) variable costing and (b) absorption costing.
Prepare a numerical reconciliation and explanation of the difference between operating income for each month under variable costing and absorption costing.
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