Perfect Furniture is a manufacturer of kitchen tables andchairs. Th e company is currently deciding between two newmethods for making kitchen tables. Th e fi rst process is estimatedto have a fi xed cost of $80,000 and a variable cost of $75 per unit.Th e second process is estimated to have a fi xed cost of $100,000and a variable cost of $60 per unit.(a) Graphically plot the total costs for both methods.Identify which ranges of product volume are best foreach method.(b) If the company produces 500 tables a year, which methodprovides a lower total cost?
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.
Perfect Furniture is a manufacturer of kitchen tables and
chairs. Th e company is currently deciding between two new
methods for making kitchen tables. Th e fi rst process is estimated
to have a fi xed cost of $80,000 and a variable cost of $75 per unit.
Th e second process is estimated to have a fi xed cost of $100,000
and a variable cost of $60 per unit.
(a) Graphically plot the total costs for both methods.
Identify which ranges of product volume are best for
each method.
(b) If the company produces 500 tables a year, which method
provides a lower total cost?
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