During the current year, XYZ Company increased its variable SG&A expenses while keeping fixed SGA expenses the same. As a result, XYZ’s: Contribution margin and gross margin will be lower. Contribution margin will be higher, while its gross margin will remain the same. Operating income will be the same under both the financial accounting income statement and contribution income statement. Inventory amounts booked under the financial accounting income statement will be lower than under the contribution income statement.
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.
During the current year, XYZ Company increased its variable SG&A expenses while keeping fixed SGA expenses the same. As a result, XYZ’s:
- Contribution margin and gross margin will be lower.
- Contribution margin will be higher, while its gross margin will remain the same.
- Operating income will be the same under both the financial accounting income statement and contribution income statement.
- Inventory amounts booked under the financial accounting income statement will be lower than under the contribution income statement.
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