At 50,000 units of production, the Grayson Company expects costs to be as follows: Direct materials $140,000 Direct labour $100,000 Depreciation of factory $ 50,000 Depreciation of production equipment $ 40,000 Production supervisor’s salary $ 24,000 Supplies $ 5,000 Indirect labour $ 30,000 Electricity $ 15,000 Assume all cost items are either strictly fixed or strictly variable. The total cost per unit at 40,000 units of production would be:
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.
At 50,000 units of production, the Grayson Company expects costs to be as follows:
|
|
Direct materials |
$140,000 |
|
|
Direct labour |
$100,000 |
|
|
|
$ 50,000 |
|
|
Depreciation of production equipment |
$ 40,000 |
|
|
Production supervisor’s salary |
$ 24,000 |
|
|
Supplies |
$ 5,000 |
|
|
Indirect labour |
$ 30,000 |
|
|
Electricity |
$ 15,000 |
Assume all cost items are either strictly fixed or strictly variable.
The total cost per unit at 40,000 units of production would be:
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