Wooden Grain Co. has organized a new division to manufacture and sell specially designed tables for mounting and using personal computers. Its new plant is highly automated and requires high monthly fixed costs as shown below. Manufacturing costs: Variable costs per unit: Direct materials P50 Direct labor 36 Overhead 4 Fixed overhead 240,000 Selling and administrative costs: Variable 12% of sales Fixed 160,000 During the month of operations, the following activity was recorded: Units produced 5,500 Units sold 5,200 Selling price per unit P300 Net materials variance-unfavorable 12,000 Net direct labor variance-favorable 5,000 Net variable overhead variance-favorable 2,500 The company has a normal capacity of 6,000 units Required: Cost of goods sold at actual under absorption costing and variable costing. Operating income under absorption costing and variable costing. Reconciliation of income under absorption costing and variable costing.
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.
Wooden Grain Co. has organized a new division to manufacture and sell specially designed tables for mounting and using personal computers. Its new plant is highly automated and requires high monthly fixed costs as shown below.
Variable costs per unit:
Direct materials P50
Direct labor 36
Fixed overhead 240,000
Selling and administrative costs:
Variable 12% of sales
Fixed 160,000
During the month of operations, the following activity was recorded:
Units produced 5,500
Units sold 5,200
Selling price per unit P300
Net materials variance-unfavorable 12,000
Net direct labor variance-favorable 5,000
Net variable overhead variance-favorable 2,500
The company has a normal capacity of 6,000 units
Required:
- Cost of goods sold at actual under absorption costing and variable costing.
- Operating income under absorption costing and variable costing.
- Reconciliation of income under absorption costing and variable costing.
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