İzmir Forwarding’s transport price for one pallet of paint is TL80/km. in a certain route. Variable costs per unit equal TL32. The company expects total fixed costs to be TL72,000 for the next month at the projected transport level of 2,000 pallets. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately. a) Suppose management believes that a TL16,000 increase in the monthly advertising expense will result in a considerable increase in sales. Sales must increase by how much to cover additional expenditure? b) Suppose that management believes that a 10% decrease in the selling price will result in a 10% increase in sales. If this proposed decrease in selling price is implemented, compute the change in the operating income. c) Write an alternative action for the company your own, to improve the performance, compute the change in the operating income. d) Which alternative (A, B, C) should be chosen? Why?
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.
İzmir Forwarding’s transport price for one pallet of paint is TL80/km. in a certain route. Variable costs per unit equal TL32. The company expects total fixed costs to be TL72,000 for the next month at the projected
transport level of 2,000 pallets. In an attempt to improve performance, management is considering a number of alternative actions. Each situation is to be evaluated separately.
a) Suppose management believes that a TL16,000 increase in the monthly advertising expense will result in a considerable increase in sales. Sales must increase by how much to cover additional expenditure?
b) Suppose that management believes that a 10% decrease in the selling price will result in a 10% increase in sales. If this proposed decrease in selling price is implemented, compute the change in the operating
income.
c) Write an alternative action for the company your own, to improve the performance, compute the change in the operating income.
d) Which alternative (A, B, C) should be chosen? Why?
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