1. Calculate the variable overhead and fixed overhead variances (spending, efficiency, spending, and volume). 2. Create a chart like that in Exhibit 7-2 showing Flexible Budget Variances and Sales-Volume Variances for revenues, costs, contribution margin, and operating income. 3. Calculate the operating income based on budgeted profit per suitcase. 4. Reconcile the budgeted operating income from requirement 3 to the actual operating income from your chart in requirement 2. 5. Calculate the operating income volume variance and show how the sales-volume variance is com- posed of the production-volume variance and the operating income volume variance. Required
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.
Overhead variances and sales-volume variance. The Roller Bag Company manufactures extremely light and rolling suitcases. It was one of the first companies to produce rolling suitcases and sales have increased for the past several years. In 2017, Roller Bag budgeted to sell 150,000 suitcases for $80 each. The budgeted standard machine hours for production in 2017 were 375,000 machine hours. Budgeted fixed overhead costs are $525,000, and variable overhead cost was budgeted at $1.75 per machine-hour. In 2017, Roller Bag experienced a drop in sales due to increased competition for rolling suitcases. Roller Bag used 310,000 machine-hours to produce the 120,000 suitcases it sold in 2017. Actual variable overhead costs were $488,000 and actual fixed overhead costs were $532,400. The average selling price of the suitcases sold in 2017 was $72. Actual direct materials and direct labor costs were the same as
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