Farad, Inc., specializes in selling used trucks. During the month, Farad sold 50 trucks at an average price of $9,000 each. The budget for the month was to sell 45 trucks at an average price of $9,500 each. Compute the dealership’s sales price variance and sales volume variance for the month and classify each as favorable or unfavorable.
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.
Farad, Inc., specializes in selling used trucks. During the month, Farad sold 50 trucks at an average price
of $9,000 each. The budget for the month was to sell 45 trucks at an average price of $9,500 each. Compute
the dealership’s sales price variance and sales volume variance for the month and classify each as favorable
or unfavorable.
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