The general variance model
The standard quantity allowed (standard hours allowed in the case of labor and overhead) is the amount of materials or labor that should have been…
Articles by MbaNotesWorld
Variable overhead standards
There may be standards for variable overhead, as well as for direct materials and direct labor. The standards are typically expressed in terms of a…
Cost behavior and operating income
At the heart of break-even point or break-even analysis is the relationship between expenses and revenues. It is critical to know how expenses will change…
Direct material standards
Speeds, Inc. makes a popular jogging suit. The company wants to develop standards for material, labor, and variable manufacturing overhead. The standard price per unit…
Break-even Point in Sales Dollars
One can determine the break-even point in sales dollars (instead of units) by dividing the company’s total fixed expenses by the contribution margin ratio. The…
Why Standard Cost Systems are adopted
Two reasons for adopting a standard cost system are: To improve planning and control. A standard cost system compares actual amounts with standard amounts to…
Desired Profit in Units
Let’s say that the owner of Oil Change Co. needs to earn a profit of $1,200 per week rather than merely breaking even. You can…
Desired Profit in Sales Dollars
Let’s assume a company needs to cover $2,400 of fixed expenses each week plus earn $1,200 of profit each week. In essence the company needs…
Break-even Point in Units
The break-even point in units for Oil Change Co. is the number of cars it needs to service in order to cover the company’s fixed…
Break Even Analysis – Contribution Margin
An important term used with break-even point or break-even analysis is contribution margin. In equation format it is defined as follows: Contribution Margin = Revenues…