Analysis of differential revenues and costs -- special order a include the formula here Increased revenue Differential costs: Selling: Per unit variable cost Units in special order Total variable costs Fixed cost increment: Total volume required by special order Extra volume Extra cost Profit/(loss) on special order b C
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.
How do I do this? See the screenshot for (a).
Total cost data follow for Glendale Manufacturing Company, which has a normal capacity per period of 8000 unitsof product that sell for $60 each. For the foreseeable future, regular sales volume should continue to equal to normal capacity
| Direct materials | $100,800 |
| Direct labor | $62,400 |
| Variable manufacturing |
$46,800 |
| Fixed manufacturing overhead | $38,400 |
| Selling expense (note 2) | $35,200 |
| Adminstrative expense (fixed) | $15,000 |
| $298,600 |
Notes:
1. Beyond normal capacity, fixed overhead costs increase $1,800 for each 500 units or fraction thereof until a maximum capacity of 10,000 units is reached.
2. Selling expenses consist of a 6% sales commission and shipping costs of 80 cents per unit. Glendalepays only three-fourths of the regular sales commission on sales totaling 501 to 1000 units and only two-thirds the regular commission on sales totaling 1000 units or more.
Glendale's sales manager has received a special order for 1200 units from a large discount chain at a price of $36 each, FOB factory. The controller's office has furnished the following additional cost data related to the special order:
1. Changes in the product's design will reduce direct materials costs $1.50 per unit
2. Special processing will add 20% to the per-unit direct labor costs.
3. Variable overhead will continue at the same proportion of direct labor costs.
4. Other costs should not be affected
Problems:
a. Present an analysis supporting a decision to accept or reject the special order.
b. What is the lowest price Glendale could receive and still make a a $3600 profit before income taxes on the special order?
c. What general qualitative factors should Glendale consider?
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