In respect of a factory the following figures have been obtained for the year 2018: Particulars Rs. Cost of Materials 12,00,000 Factory Overheads 6,00,000 Selling Overheads 4,48,000 Distribution Overheads 2,80,000 Direct Wages 10,00,000 Administrative Overheads 6,72,000 Profit 8,40,000 A work order has been executed in 2019 and the following expenses have been incurred: Materials Rs. 16,000 and Wages Rs.10,000 Assuming that on 2019 the rate of factory overheads increased by 20%, distribution overheads have gone down by 10% and selling and administrative overheads have each gone up by 12.5%. At what price should the product be sold as to earn the same rate of profit on the selling price as in 2018? Factory overheads are based on direct wages while all other overheads are based on factory cost.
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.
In respect of a factory the following figures have been obtained for the year 2018:
|
Particulars |
Rs. |
|
Cost of Materials |
12,00,000 |
|
Factory Overheads |
6,00,000 |
|
Selling Overheads |
4,48,000 |
|
Distribution Overheads |
2,80,000 |
|
Direct Wages |
10,00,000 |
|
Administrative Overheads |
6,72,000 |
|
Profit |
8,40,000 |
A work order has been executed in 2019 and the following expenses have been incurred:
Materials Rs. 16,000 and Wages Rs.10,000
Assuming that on 2019 the rate of factory overheads increased by 20%, distribution overheads have gone down by 10% and selling and administrative overheads have each gone up by 12.5%.
At what price should the product be sold as to earn the same rate of profit on the selling price as in 2018? Factory overheads are based on direct wages while all other overheads are based on
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