Product A Product B March Sales $25,000 $27,000 March Variable costs $7,000 $8,600
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.
Question 2
XYZ Company produces and sells only two products since year 2000. Data concerning those products for March 2020 appear below:
|
|
Product A |
Product B |
|
March Sales |
$25,000 |
$27,000 |
|
March Variable costs |
$7,000 |
$8,600 |
|
March Fixed costs |
$32,860 |
Required:
- As a Senior Manager at XYZ Company, your General Manager asked you to determine the total sales of the company in $ for product A and for product B that should be achieved to cover both variable and fixed costs for the month of March by using the company's contribution margin.
- The level of competition in the market was acceptable and manageable by the Company. In March, 2020, a new potential competitor is doing a
market research to decide on entering the market with a product similar to Product A. The General Manager asked for your advice if the company should shift the sales mix toward Product B with no change in total sales (as the sales of product B is more than product A). What will be your advice to him? Explain to your General Manager this situation.
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