Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations: Variable costs per unit: Manufacturing: Direct materials $ 25 Direct labor $ 15 Variable manufacturing overhead $ 5 Variable selling and administrative $ 2 Fixed costs per year: Fixed manufacturing overhead $ 250,000 Fixed selling and administrative expenses $ 80,000 During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $60 per unit. 2. Assume the company uses absorption costing: a. Compute the unit product cost for Year 1 and Year 2. b. Prepare an income statement for Year 1 and Year 2. 3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1. Reconcile the difference between variable costing and absorption costing net operating income in Year 1. (Enter any losses or deductions as a negative value.) Year 1 Year 2 Variable costing net operating income (loss) not attempted not attempted Add (deduct) fixed manufacturing overhead deferred in (released from) inventory under absorption costing not attempted not attempted Absorption costing net operating income not attempted not attempted
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.
Walsh Company manufactures and sells one product. The following information pertains to each of the company’s first two years of operations:
| Variable costs per unit: | |
|---|---|
| Manufacturing: | |
| Direct materials | $ 25 |
| Direct labor | $ 15 |
| Variable manufacturing |
$ 5 |
| Variable selling and administrative | $ 2 |
| Fixed costs per year: | |
| Fixed manufacturing overhead | $ 250,000 |
| Fixed selling and administrative expenses | $ 80,000 |
During its first year of operations, Walsh produced 50,000 units and sold 40,000 units. During its second year of operations, it produced 40,000 units and sold 50,000 units. The selling price of the company’s product is $60 per unit.
2. Assume the company uses absorption costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
3. Reconcile the difference between variable costing and absorption costing net operating income in Year 1.
Reconcile the difference between variable costing and absorption costing net operating income in Year 1. (Enter any losses or deductions as a negative value.)
|
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