Semi-variable Tk30, 000 per annum up to 40% capacity and an extra expense of Tk 15,000 for every 20% increase in capacity or part thereof. The factory produces only against orders (and not for own stock). If the production of the factory is as indicated below and management desires to earn profit of 20% on sales for the year, work out the average selling price at which each unit should be quoted: First 2 months of the year: 30% capacity: Remaining months of the year 75% capacity. Ignore selling, distribution and administrative overheads.
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.
A factory can produce 1,20,000 units per annum at its optimum (100%) capacity. The estimated costs of production are as under:
Direct Material Tk 6 per unit
Direct labor Tk 4 per unit
Indirect Expenses:
Fixed Tk 3,00,000
Variable Tk 2.50 per unit
Semi-variable Tk30, 000 per annum up to 40% capacity and an extra expense of Tk 15,000 for every 20% increase in capacity or part thereof.
The factory produces only against orders (and not for own stock). If the production of the factory is as indicated below and management desires to earn profit of 20% on sales for the year, work out the average selling price at which each unit should be quoted:
First 2 months of the year: 30% capacity: Remaining months of the year 75% capacity.
Ignore selling, distribution and administrative
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