A company has two products A and B. The budgeted fixed manufacturing overhead is $10,000. It is expected to work in full capacity. It plans to use cost-based pricing by using the absorption method. Assume the company can produce and sell 1,000 units Product A and 1,000 units Product B. Product A Product B Direct Labor $1 $3 Direct Materials $3 $2 Variable Manufacturing Overhead $2 $1 Budgeted labor hours used for each unit product 1 4 Budgeted machine hours used for each unit product 3 1 Sale Demand 1000units 1000units Required ROI Rate 10% 5% Required Investment $5000 $30000 Fixed Selling Expenses $2000 $4000 Unit Variable Selling Expenses $1 $2 If allocating fixed manufacturing overhead based on machine hour basis, calculate the sale price of products A and B and budgeted profit of products A and B.
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.
A company has two products A and B. The budgeted fixed manufacturing overhead is $10,000. It is expected to work in full capacity. It plans to use cost-based pricing by using the absorption method. Assume the company can produce and sell 1,000 units Product A and 1,000 units Product B.
| Product A | Product B | |
| Direct Labor | $1 | $3 |
| Direct Materials | $3 | $2 |
| Variable Manufacturing Overhead | $2 | $1 |
| Budgeted labor hours used for each unit product | 1 | 4 |
| Budgeted machine hours used for each unit product | 3 | 1 |
| Sale Demand | 1000units | 1000units |
| Required |
10% | 5% |
| Required Investment | $5000 | $30000 |
| Fixed Selling Expenses | $2000 | $4000 |
| Unit Variable Selling Expenses | $1 | $2 |
If allocating fixed manufacturing overhead based on machine hour basis, calculate the sale price of products A and B and budgeted profit of products A and B.
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