Paty Ltd operating business of shipping it is contemplating two cost structures for its operations. A. The plan has high variable cost pu shipped with lower annual fixed costs B. The plan has lower variable cost with higher fixed cost. Details of Cost: Plan A: Per shipment revenue=100 Variable cost per shipment delivered=85 Contribution=15 Annual fixed cost=1,200,000 Plan B: Per shipment revenue=100 Variable cost per shipment delivered=60 Contribution=40 Annual fixed cost=4,500,000 Required: 1.BEP (In volumes) for both the plans 2.Under plan A to produce an operating income of 30,000, how many shipments to be made. 3. Shipments to be made under plan A to produce an operating margin which is equal to 9% of sales revenue in total.
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.
Paty Ltd operating business of shipping it is contemplating two cost structures for its operations.
A. The plan has high variable cost pu shipped with lower annual fixed costs
B. The plan has lower variable cost with higher fixed cost.
Details of Cost:
Plan A:
Per shipment revenue=100
Variable cost per shipment delivered=85
Contribution=15
Annual fixed cost=1,200,000
Plan B:
Per shipment revenue=100
Variable cost per shipment delivered=60
Contribution=40
Annual fixed cost=4,500,000
Required:
1.BEP (In volumes) for both the plans
2.Under plan A to produce an operating income of 30,000, how many shipments to be made.
3. Shipments to be made under plan A to produce an operating margin which is equal to 9% of sales revenue in total.
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