Martin Manufacturer Ltd started its operations on 1 January 2021, and the planned production for the year was 50,000 units. This production level was achieved, but only 46,250 units were sold at $90 each. Other relevant data are as follows: $ Direct material used 600,000 Direct labour cost incurred 300,000 Fixed manufacturing overhead (actual and planned) 375,000 Variable manufacturing (actual and planned) 180,000 Fixed selling and administrative expenses 450,000 Variable selling and administrative expenses $1.4
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.
Martin Manufacturer Ltd started its operations on 1 January 2021, and the planned production for
the year was 50,000 units. This production level was achieved, but only 46,250 units were sold
at $90 each.
Other relevant data are as follows:
$
Direct material used 600,000
Direct labour cost incurred 300,000
Fixed manufacturing
Variable manufacturing (actual and planned) 180,000
Fixed selling and administrative expenses 450,000
Variable selling and administrative expenses $1.40 per unit
Required:
(i) Calculate the product cost per unit under variable and absorption costing.
(ii) Prepare an income statement for Martin Manufacturer Ltd for the year ending 31 December
2021 using variable costing.
(iii) Prepare an income statement for Martin Manufacturer Ltd for the year ending 31 December
2021 using absorption costing.
(iv) Reconcile the difference in the profit reported in (ii) and (iii).
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