The table below shows monthly data collected on production costs and on the number of units produced over a twelve month period. Month Total Production Costs Level of Activity (Units Produced) July $ 230,000 3,500 August 250,000 3,750 September 260,000 3,800 October 220,000 3,400 November 340,000 5,800 December 330,000 5,500 January 200,000 2,900 February 210,000 3,300
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 table below shows monthly data collected on production costs and on the number of units produced over a twelve month period.
|
Month |
Total Production Costs |
Level of Activity (Units Produced) |
|
July |
$ 230,000 |
3,500 |
|
August |
250,000 |
3,750 |
|
September |
260,000 |
3,800 |
|
October |
220,000 |
3,400 |
|
November |
340,000 |
5,800 |
|
December |
330,000 |
5,500 |
|
January |
200,000 |
2,900 |
|
February |
210,000 |
3,300 |
|
March |
240,000 |
3,600 |
|
April |
380,000 |
5,900 |
|
May |
350,000 |
5,600 |
|
June |
290,000 |
5,000 |
Required:
- Determine the variable cost per unit and the fixed cost using the high-low method.
- What is the equation of the total mixed cost function?
3. Prepare the scatter diagram, clearly showing any outliers
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