Mcniff Corporation makes a range of products. The company's predetermined overhead rate is $17 per direct labor-hour, which was calculated using the following budgeted data: Variable manufacturing overhead $ 80,000 Fixed manufacturing overhead $ 260,000 Direct labor-hours 20,000 Management is considering a special order for 710 units of product O96S at $65 each. The normal selling price of product O96S is $76 and the unit product cost is determined as follows: Direct materials $ 38.00 Direct labor 17.00 Manufacturing overhead applied 17.00 Unit product cost $ 72.00 If the special order were accepted, normal sales of this and other products would not be affected. The company has ample excess capacity to produce the additional units. Assume that direct labor is a variable cost, variable manufacturing overhead is really driven by direct labor-hours, and total fixed manufacturing overhead would not be affected by the special order. Required: The profit (loss) for the company as a result of accepting this special order would be:
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.
Mcniff Corporation makes a range of products. The company's predetermined
| Variable manufacturing overhead | $ | 80,000 |
| Fixed manufacturing overhead | $ | 260,000 |
| Direct labor-hours | 20,000 | |
Management is considering a special order for 710 units of product O96S at $65 each. The normal selling price of product O96S is $76 and the unit product cost is determined as follows:
| Direct materials | $ | 38.00 |
| Direct labor | 17.00 | |
| Manufacturing overhead applied | 17.00 | |
| Unit product cost | $ | 72.00 |
If the special order were accepted, normal sales of this and other products would not be affected. The company has ample excess capacity to produce the additional units. Assume that direct labor is a variable cost, variable manufacturing overhead is really driven by direct labor-hours, and total fixed manufacturing overhead would not be affected by the special order.
Required:
The
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