Mike. Inc has two products A and B. The budgeted fixed manufacturing overhead is $10,000. The department is expected to work in full capacity. It plans to use cost-based pricing by using the absorption method. Assume the firm can produce and sell 1,000 units Product A and 1,000 units Product B. Product A Product B Direct Materials $3 $2 Direct Labor $1 $3 Variable Manufacturing Overhead $2 $1 Budgeted labor hours used for each unit product 1 4 Budgeted machine hours used for each unit product 3 1 Sale Demand 1,000 1,000 Product A Product B Required Investment $5,000 $30,000 Required ROI Rate 10.00% 5.00% Unit Variable Selling Expenses $1 $2 Fixed Selling Expenses $2,000 $4,000 Due to the COVID-19 outbreak, the company anticipates a large decrease in sales in 2021. Without preparing income statements, please discuss which product can bring higher net income to the firm and explain why. (explain in word, not income statement or excel or table)
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.
Mike. Inc has two products A and B. The budgeted fixed manufacturing
is expected to work in full capacity. It plans to use cost-based pricing by using the absorption method. Assume
the firm can produce and sell 1,000 units Product A and 1,000 units Product B.
Product A Product B
Direct Materials $3 $2
Direct Labor $1 $3
Variable Manufacturing Overhead $2 $1
Budgeted labor hours used for each unit product 1 4
Budgeted machine hours used for each unit product 3 1
Sale Demand 1,000 1,000
Product A Product B
Required Investment $5,000 $30,000
Required
Unit Variable Selling Expenses $1 $2
Fixed Selling Expenses $2,000 $4,000
Due to the COVID-19 outbreak, the company anticipates a large decrease in sales in 2021. Without preparing income statements, please discuss which product can bring higher net income to the firm and explain why. (explain in word, not income statement or excel or table)
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 4 images
