Tempo Company's fixed budget (based on sales of 16,000 units) for the first quarter reveals the following. Fixed Budget Sales (16,000 units × $210 per unit) $ 3,360,000 Cost of goods sold Direct materials $ 384,000 Direct labor 704,000 Production supplies 432,000 Plant manager salary 184,000 1,704,000 Gross profit 1,656,000 Selling expenses Sales commissions 128,000 Packaging 256,000 Advertising 100,000 484,000 Administrative expenses Administrative salaries 234,000 Depreciation—office equip. 204,000 Insurance 174,000 Office rent 184,000 796,000 Income from operations $ 376,000 (1) Compute the total variable cost per unit. (2) Compute the total fixed costs. (3) Compute the income from operations for sales volume of 14,000 units. (4) Compute the income from operations for sales volume of 18,000 units.
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.
Exercise 08-3 Preparing flexible budgets LO P1
Tempo Company's fixed budget (based on sales of 16,000 units) for the first quarter reveals the following.
| Fixed Budget | ||||||||
| Sales (16,000 units × $210 per unit) | $ | 3,360,000 | ||||||
| Cost of goods sold | ||||||||
| Direct materials | $ | 384,000 | ||||||
| Direct labor | 704,000 | |||||||
| Production supplies | 432,000 | |||||||
| Plant manager salary | 184,000 | 1,704,000 | ||||||
| Gross profit | 1,656,000 | |||||||
| Selling expenses | ||||||||
| Sales commissions | 128,000 | |||||||
| Packaging | 256,000 | |||||||
| Advertising | 100,000 | 484,000 | ||||||
| Administrative expenses | ||||||||
| Administrative salaries | 234,000 | |||||||
| 204,000 | ||||||||
| Insurance | 174,000 | |||||||
| Office rent | 184,000 | 796,000 | ||||||
| Income from operations | $ | 376,000 | ||||||
(1) Compute the total variable cost per unit.
(2) Compute the total fixed costs.
(3) Compute the income from operations for sales volume of 14,000 units.
(4) Compute the income from operations for sales volume of 18,000 units.
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