$ 20 per unit Fixed overhead $ 8,400,000 per year Variable selling and administrative expenses $ 11 per unit Fixed selling and administrative expenses $ 4,250,000 per year Units produced 105,000 units Units sold 75,000 units
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.
Sims Company began operations on January 1. Its cost and sales information for this year follow.
| Direct materials | $ 40 | per unit |
|---|---|---|
| Direct labor | $ 60 | per unit |
| Variable overhead | $ 20 | per unit |
| Fixed overhead | $ 8,400,000 | per year |
| Variable selling and administrative expenses | $ 11 | per unit |
| Fixed selling and administrative expenses | $ 4,250,000 | per year |
| Units produced | 105,000 | units |
| Units sold | 75,000 | units |
| Sales price | $ 350 | per unit |
1. Prepare an income statement for the year using variable costing.
2. Prepare an income statement for the year using absorption costing.
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