The Mavis Company uses an absorption-costing system based on standard costs. Total variable manufacturing costs, including direct material cost, are $3 per unit. Total budgeted and actual fixed manufacturing overhead costs are $420,000. Fixed manufacturing overhead is allocated at $0.7 per unit ($420,000/600,000 units). Selling price is $5 per unit. Variable operating (non-manufacturing) cost $1 per unit sold. Fixed operating (non-manufacturing) costs are $120,000. Beginning inventory in 2012 is 30,000 units; ending inventory is 40,000 units. Sales in 2012 are 540,000 units. The same standard unit costs persisted throughout 2011 and 2012. Assume there are no price, spending or efficiency variances. Required Prepare an income statement for 2012 under both the periodic and perpetual formats assuming that the PVV is written off at year-end as an adjustment to COGS.
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.
The Mavis Company uses an absorption-costing system based on
Required
Prepare an income statement for 2012 under both the periodic and perpetual formats assuming that the PVV is written off at year-end as an adjustment to COGS.
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