Question

Engle Manufacturing Company established the following standard price and cost
information:

sales price	$50 per unit
variable Manufacturing cost	32 per unit
fixed manufacturing cost	$100,000 total
fixed selling and administrative cost	$40,000 tota

Engle expected
to produce and sell 15,000 units. Actual production and sales amounted to 16,000 units.
Required:
(a) Determine the sales volume variances, including variances for number of units, sales
revenue, variable manufacturing cost, fixed manufacturing cost, and fixed selling and
administrative cost.
(b) Classify the variances as favorable (F) or unfavorable (U).
(c) Comment on the usefulness of the variances with respect to performance evaluation.
(d) Explain why the fixed cost variances are zero.

Answer 1

Eagle Manufacturing Company
Sales Price $ / Unit	50
Variable Manufacturing $ / Unit	32
Fixed manufacturing cost$	1,00,000
Fixed selling and Administrative cost $	40,000
Epected and Produced- Units	15,000
Actual production	16,000
Sales Volume Variance $	50000	F B ( favorable )
"( Actual unit sold- budgeted unit sold)* Budgeted selling price
(16000-15000)*$50/ Unit
Sales Revenue Variance	Same as above - Sales Volume Variance
Sales Revenue Variance $	50,000	F B ( Favorable )
Variable Manufacturing cost - Variance
"( Actual unit sold- budgeted unit sold)* Budgeted Variable Manufacturing cost/ Unit
(16000-15000)*$32/ Unit	32000	UF B ( Unfavorable)

Usefulness of Variance - With help of variance , management can take decision of cost control , Also they can understand whether actual production is exceeding budgeted production , revenue variance - most important  factor to judge by Management . Management need to revise strategy as well as future forecast on the basis of variance analysis . Any Unfavorbale variance , always alarming for Investor

Fixed cost zero because same cost has been used in Budget as well as Actual