Elfalan Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 60,000 units per month is as follows: Per Unit Direct materials $ 52.60 Direct labor $ 10.10 Variable manufacturing overhead $ 3.10 Fixed manufacturing overhead $ 21.30 Variable selling & administrative expense $ 5.80 Fixed selling & administrative expense $ 28.00
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.
Elfalan Corporation produces a single product. The cost of producing and selling a single unit of this product at the company's normal activity level of 60,000 units per month is as follows:
| Per Unit | ||
| Direct materials | $ | 52.60 |
| Direct labor | $ | 10.10 |
| Variable manufacturing overhead | $ | 3.10 |
| Fixed manufacturing overhead | $ | 21.30 |
| Variable selling & administrative expense | $ | 5.80 |
| Fixed selling & administrative expense | $ | 28.00 |
The normal selling price of the product is $126.10 per unit.
An order has been received from an overseas customer for 4,000 units to be delivered this month at a special discounted price. This order would not change the total amount of the company's fixed costs. The variable selling and administrative expense would be $3.20 less per unit on this order than on normal sales.
Direct labor is a variable cost in this company.
Suppose there is ample idle capacity to produce the units required by the overseas customer and the special discounted price on the special order is $96.40 per unit. The monthly financial advantage (disadvantage) for the company as a result of accepting this special order should be:
Garrison 16e Rechecks 2017-12-15
-
($102,000)
-
$26,800
-
$112,000
-
($98,000)
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
