Estimated Income Statements, using Absorption and Variable Costing Prior to the first month of operations ending October 31, Marshall Inc. estimated the following operating results: Sales (28,000 x $98) $2,744,000 Manufacturing costs (28,000 units): Direct materials 1,660,400 Direct labor 392,000 Variable factory overhead 184,800 Fixed factory overhead 218,400 Fixed selling and administrative expenses 59,400 Variable selling and administrative expenses 71,900 The company is evaluating a proposal to manufacture 31,200 unit
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.
Estimated Income Statements, using Absorption and Variable Costing
Prior to the first month of operations ending October 31, Marshall Inc. estimated the following operating results:
| Sales (28,000 x $98) | $2,744,000 | |
| Manufacturing costs (28,000 units): | ||
| Direct materials | 1,660,400 | |
| Direct labor | 392,000 | |
| Variable factory |
184,800 | |
| Fixed factory overhead | 218,400 | |
| Fixed selling and administrative expenses | 59,400 | |
| Variable selling and administrative expenses | 71,900 |
The company is evaluating a proposal to manufacture 31,200 units instead of 28,000 units, thus creating an ending inventory of 3,200 units. Manufacturing the additional units will not change sales, unit variable
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