Variable costs per unit: Fixed costs: Direct materials $120 Factory overhead $250,000 Direct labor 30 Selling and a
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.
Crystal Displays Inc. recently began production of a new product, flat panel displays, which required the investment of $1,500,000 in assets. The costs of producing and selling 5,000 units of flat panel displays are estimated as follows:
| Variable costs per unit: | Fixed costs: | |||
| Direct materials | $120 | Factory |
$250,000 | |
| Direct labor | 30 | Selling and administrative expenses | 150,000 | |
| Factory overhead | 50 | |||
| Selling and administrative expenses | 35 | |||
| Total variable cost per unit | $235 |
Crystal Displays Inc. is currently considering establishing a selling price for flat panel displays. The president of Crystal Displays has decided to use the cost-plus approach to product pricing and has indicated that the displays must earn a 15%
(Appendix) Assuming that the variable cost method is used, determine the following:
| a. Variable cost amount per unit | $ | |
| b. Markup percentage | % | |
| c. Selling price per unit | $ |
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