Pillar Company expects to incur the following costs at the planned production level of 10,000 units: Direct materials P100,000 Direct labor 120,000 Variable overhead 60,000 Fixed overhead 30,000 The selling price is P50 per unit. The company currently operates at full capacity of 10,000 units. Capacity can be increased to 13,000 units by operating overtime. Variable costs increase by P14 per unit for overtime production. Fixed overhead costs remain unchanged when overtime operations occur. Pillar Company has received a special order from a wholesaler who has offered to buy 1,000 units at P45 each. What is the impact on Pillar's operating income if this special order is accepted? A. P3,000 increase B. no change C. P17,000 increase D. P5,000 decrease
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.
Pillar Company expects to incur the following costs at the planned production level of 10,000 units:
Direct materials
P100,000
Direct labor
120,000
Variable
60,000
Fixed overhead
30,000
The selling price is P50 per unit. The company currently operates at full capacity of 10,000 units. Capacity can be increased to 13,000 units by operating overtime. Variable costs increase by P14 per unit for overtime production. Fixed overhead costs remain unchanged when overtime operations occur. Pillar Company has received a special order from a wholesaler who has offered to buy 1,000 units at P45 each. What is the impact on Pillar's operating income if this special order is accepted?
A. P3,000 increase
B. no change
C. P17,000 increase
D. P5,000 decrease
Answer with explanation/solution please. Thank you.
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