Sweeney Enterprises manufactures tires for the Formula I motor racing circuit. For August 2017 it budgeted to manufacture and sell 3,600 tires at a variable cost of $71 per tire and total fixed costs of $55,000. The budgeted selling price was $114 per tire. Actual results in August 2017 weere 3,500 tires manufactured and sold at a selling price of $116 per tire. The actual total variable costs were $280,000, and the actual total fixed costs were $51,000. Prepare a performance report that uses flexible budget and a static budget. Determine if the result are favorable or unfavorable. Comment on the results
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.
Sweeney Enterprises manufactures tires for the Formula I motor racing circuit. For August 2017 it budgeted to manufacture and sell 3,600 tires at a variable cost of $71 per tire and total fixed costs of $55,000. The budgeted selling price was $114 per tire. Actual results in August 2017 weere 3,500 tires manufactured and sold at a selling price of $116 per tire. The actual total variable costs were $280,000, and the actual total fixed costs were $51,000.
Prepare a performance report that uses flexible budget and a static budget. Determine if the result are favorable or unfavorable.
Comment on the results
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