Muneeba & Nuzaif (MN) manufactures and sells a single product. The following were incurred during the company’s first year of operations: Variable Cost per Unit: Rs. Production: Direct Material 30 Direct Labor 6 Variable Manufacturing Overhead 4 Variable Selling and Administrative 10 Fixed Cost per period: Fixed Manufacturing Overhead 320,000 Fixed Selling and Administrative 220,000 During 1st year, the company produced 40,000 units and sold 32,000 units. During 2nd year, the company produced 35,000 units and sold 40,000 units. The selling price if the company’s product is Rs. 100 per unit. Required: Assume the company uses the Absorption costing method. Compute the unit product cost for both years. Prepare an income statement for both years. Assume the company uses the Variable costing method. Compute the unit product cost for both years. Prepare an income statement for both years. Reconcile the profits for both years.
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.
Muneeba & Nuzaif (MN) manufactures and sells a single product. The following were incurred during the company’s first year of operations:
|
Variable Cost per Unit: |
Rs. |
|
Production: |
|
|
Direct Material |
30 |
|
Direct Labor |
6 |
|
Variable Manufacturing |
4 |
|
Variable Selling and Administrative |
10 |
|
Fixed Cost per period: |
|
|
Fixed Manufacturing Overhead |
320,000 |
|
Fixed Selling and Administrative |
220,000 |
During 1st year, the company produced 40,000 units and sold 32,000 units.
During 2nd year, the company produced 35,000 units and sold 40,000 units.
The selling price if the company’s product is Rs. 100 per unit.
Required:
- Assume the company uses the Absorption costing method.
- Compute the unit product cost for both years.
- Prepare an income statement for both years.
- Assume the company uses the Variable costing method.
- Compute the unit product cost for both years.
- Prepare an income statement for both years.
- Reconcile the profits for both years.
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