Estimated Fixed Cost Estimated Variable Cost (per unit sold) Production costs: Direct materials... Direct labor. Factory overhead. $ 46 .... 40 $200,000 20 Selling expenses: Sales salaries and commissions.... Advertising.... Travel .... Miscellaneous selling expense. Administrative expenses: 110,000 40,000 12,000 7,600 ...... Office and officers' salaries.. Supplies... Miscellaneous administrative expense. 132,000 10,000 13,400 $525,000 Total..... $120
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.
Contribution margin, break-even sales, cost-volume-profit chart, margin
of safety, and operating leverage
Wolsey Industries Inc. expects to maintain the same inventories at the
end of 20Y3 as at the beginning of the year. The total of all production
costs for the year is therefore assumed to be equal to the cost of goods
sold. With this in mind, the various department heads were asked to
submit estimates of the costs for their departments during the year. A
summary report of these estimates is as attached:
It is expected that 21,875 units will be sold at a price of $160 a unit.
Maximum sales within the relevant range are 27,000 units.
Instructions
Prepare an estimated income statement for 20Y3.
What is the expected contribution margin ratio?
Determine the break-even sales in units and dollars.
Construct a cost-volume-profit chart indicating the break-even sales.
What is the expected margin of safety in dollars and as a percentage of
sales?
Determine the operating leverage.
It is expected that 12,000 units will be sold a price of $240 a unit.
Maximum sales within the relevant range are 18,000 units.
Instructions
Prepare an estimated income statement for 2017.
What is the expected contribution margin ratio?
Determine the break-even sales in units and dollars.
Construct a cost-volume-profit chart indicating the break-even sales.
What is the expected margin of safety in dollars and as a percentage of
sales?
Determine the operating leverage.
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