1) Prepare a contribution margin income statement for RantauBags for the coming year. 2) What is the effect on RantauBags operating income if 13,000 units are manufactured and sold next year? Show computation. 3) Calculate the number of units RantauBags must sell to breakeven.
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.
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TASK ONE: COST-VOLUME-PROFIT ANALYSIS
RantauBags Company plans to sell 10,000 handbags at $400 each in the coming
year. Data on cost per handbag are as follows:
Direct materials $80
Direct labour $125
Variable overhead $15
Variable selling expense is a commission of 5 per cent of the sales price. Total fixed
factory overhead amounts to $800,000. Fixed selling and administrative expense
totalled $400,000.
Required:
1) Prepare a contribution margin income statement for RantauBags for the coming
year.
2) What is the effect on RantauBags operating income if 13,000 units are
manufactured and sold next year? Show computation.
3) Calculate the number of units RantauBags must sell to breakeven.
4) Calculate the number of units RantauBags must sell to achieve a target
operating income of $240,000.
5) Calculate the margin of safety in sales ($) for the coming year.
6) Discuss TWO benefits of manager's possessing the knowledge/understanding on
cost-volume-profit analysis.
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