Jules Company manufactures and sells two products GK320 and GK340. It had budgeted to produce 25,000 units each for both GK320 and GK340. The following costs were incurred during 2020, the company’s first year of operations. Variable Cost per unit Details GK320 $ GK340 $ Direct materials 18 13 Direct labour 5 7 Variable overheads 2 7 Fixed production overhead 200,000 200,000 Fixed selling and administrative overheads for the company was $65,000. During 2020, the company produced 20,000 units for GK320 and 15,000 units for GK340. The company sold 16,000 units for GK320 and 10,000 units for GK340. The selling price of the company’s product is $50 per unit for both products. Required for both products: a) Compute the ending inventory for the year. b) Assume the company uses the absorption costing method: i. Compute the total cost to produce one unit of each product. ii. Prepare an income statement for 2020. c) Assume that the company uses the variable costing method: i. Compute the variable cost of producing one unit of each product. ii. Prepare an income statement for 2020. d) Reconcile the difference between the profits of the two methods.
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.
Jules Company manufactures and sells two products GK320 and GK340. It had budgeted to produce 25,000 units each for both GK320 and GK340. The following costs were incurred during 2020, the company’s first year of operations.
Variable Cost per unit
|
Details |
GK320 $ |
GK340 $ |
|
Direct materials |
18 |
13 |
|
Direct labour |
5 |
7 |
|
Variable |
2 |
7 |
|
|
|
|
|
Fixed production overhead |
200,000 |
200,000 |
Fixed selling and administrative overheads for the company was $65,000.
During 2020, the company produced 20,000 units for GK320 and 15,000 units for GK340. The company sold 16,000 units for GK320 and 10,000 units for GK340. The selling price of the company’s product is $50 per unit for both products.
Required for both products:
a) Compute the ending inventory for the year.
b) Assume the company uses the absorption costing method:
i. Compute the total cost to produce one unit of each product.
ii. Prepare an income statement for 2020.
c) Assume that the company uses the variable costing method:
i. Compute the variable cost of producing one unit of each product.
ii. Prepare an income statement for 2020.
d) Reconcile the difference between the profits of the two methods.
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Jules Company manufactures and sells two products GK320 and GK340. It had budgeted to produce 25,000 units each for both GK320 and GK340. The following costs were incurred during 2020, the company’s first year of operations.
Variable Cost per unit
|
Details |
GK320 $ |
GK340 $ |
|
Direct materials |
18 |
13 |
|
Direct labour |
5 |
7 |
|
Variable overheads |
2 |
7 |
|
|
|
|
|
Fixed production overhead |
200,000 |
200,000 |
Fixed selling and administrative overheads for the company was $65,000.
During 2020, the company produced 20,000 units for GK320 and 15,000 units for GK340. The company sold 16,000 units for GK320 and 10,000 units for GK340. The selling price of the company’s product is $50 per unit for both products.
Required for both products:
c) Assume that the company uses the variable costing method:
i. Compute the variable cost of producing one unit of each product.
ii. Prepare an income statement for 2020.
d) Reconcile the difference between the profits of the two methods.
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