Sales (40,000 x $90) . Manufacturing costs (40,000 units): Direct materials... Direct labor.... Variable factory overhead. Fixed factory overhead.. Fixed selling and administrative expenses.. Variable selling and administrative expenses... $3,600,000 ..... 1,440,000 480,000 ..... 240,000 120,000 75,000 200,000
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.
Estimated income statements, using absorption and variable costing Prior to the first month of operations ending October 31, Marshall Inc. estimated the following operating results:
The company is evaluating a proposal to manufacture 50,000 units instead of 40,000 units, thus creating an ending inventory of 10,000 units. Manufacturing the additional units will not change sales, unit variable
a. Prepare an estimated income statement, comparing operating results if 40,000 and 50,000 units are manufactured in (1) the absorption costing format and (2) the variable costing format.
b. What is the reason for the difference in operating income reported for the two levels of production by the absorption costing income statement?
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