The controller for Camden's Bike Shop has gathered the following cost and activity level information: Average total cost per unit $225.00 Production level used to calculate average cost 1,000 Total fixed costs $80,000 What is the total cost of producing 1,000 racing bicycles? What is the variable cost of producing each racing bicycle? Suppose the controller uses the average cost to predict total costs. What total cost would the controller calculate for 2,500 racing bicycles?
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.
The controller for Camden's Bike Shop has gathered the following cost and activity level information:
|
|
$225.00 |
|
Production level used to calculate average cost |
1,000 |
|
Total fixed costs |
$80,000 |
- What is the total cost of producing 1,000 racing bicycles?
- What is the variable cost of producing each racing bicycle?
- Suppose the controller uses the average cost to predict total costs. What total cost would the controller calculate for 2,500 racing bicycles?
- If the controller uses the cost equation to predict total costs, what total cost would the controller calculate for 2,500 racing bicycles?
- Is there a difference between the
forecasted total cost using average cost versus the cost equation? If there is a difference, what creates the difference? If there is no difference, when would there be a difference?
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