CVP computations. Garrett Manufacturing sold 410,000 units of its product for $68 per unit in 2017. Variable cost per unit is $60, and total fixed costs are $1,640,000. 1. Calculate (a) contribution margin and (b) operating income. 2. Garrett’s current manufacturing process is labor intensive. Kate Schoenen, Garrett’s production manager, has proposed investing in state-of-the-art manufacturing equipment, which will increase the annual fixed costs to $5,330,000. The variable costs are expected to decrease to $54 per unit. Garrett expects to maintain the same sales volume and selling price next year. How would acceptance of Schoenen’s proposal affect your answers to (a) and (b) in requirement 1? 3. Should Garrett accept Schoenen’s proposal? Explain.
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.
CVP computations. Garrett Manufacturing sold 410,000 units of its product for $68 per unit in 2017.
Variable cost per unit is $60, and total fixed costs are $1,640,000.
1. Calculate (a) contribution margin and (b) operating income.
2. Garrett’s current manufacturing process is labor intensive. Kate Schoenen, Garrett’s production manager,
has proposed investing in state-of-the-art manufacturing equipment, which will increase the annual
fixed costs to $5,330,000. The variable costs are expected to decrease to $54 per unit. Garrett expects
to maintain the same sales volume and selling price next year. How would acceptance of Schoenen’s
proposal affect your answers to (a) and (b) in requirement 1?
3. Should Garrett accept Schoenen’s proposal? Explain.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 2 images
