Monthly repair and maintenance cost Actual cost (curvilinear) $4,000 Approximation (semivariable) $3,000 $2,000 $1,000 Thousands of 10 30 40 50 60 70 80 90 100 miles driven 20
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 behavior of the annual maintenance and repair cost in the Bus Transportation Department of the Summerset Public School District is shown by the solid line in the following graph. The dashed line depicts a semivariable-cost approximation of the department’s repair and maintenance cost.
Required:
1. What is the actual (curvilinear) and estimated (semivariable) cost shown by the graph for each of the following activity levels?
Actual Estimated
a. 20,000 miles
b. 40,000 miles
c. 60,000 miles
d. 90,000 miles
2. How good an approximation does the semivariable-cost pattern provide if the department’s relevant range is 40,000 to 60,000 miles per month? What if the relevant range is 20,000 to 90,000 miles per month?
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