Vaughan Company sells its product for $80 per unit. During 2020, it produced 7,000 units and sold 5,000 units (there was no beginning inventory). During 2021, it produced 6,000 units and sold 8,000 units Over the 2 years, costs were stable: Direct Materials per unit $ 20 Direct Labor per unit is $ 10 Variable Factory Overhead per unit $ 8 Variable Selling & Administrative per unit $ 4 Fixed Factory Overhead $ 126,000 Fixed Selling & Administrative $ 50.000
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.
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