Question

1. What is the purpose of using a Variance Analysis by management?

2. What is the breakeven point given the following information:

Fixed Cost: $30,000

Variable Cost $10 / unit

Unit Sales Price $25

Find Units that must be sold to breakeven?

Answer 1

Variance analysis: Variance analysis is the process of comparing standards with actual. Project expenses are monitored by using variance analysis. By doing this management may compare between planned expenditure with actual expenditure to have a better control over project. Based on this analysis they will come to conclusion, whether they spend less or more expenditure on the project. Variance analysis provide trend analysis to identify opportunities and strengths.

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Calculate the beak even point as follows:

Break even point = Fixed cost / (Sales price - variable cost)

= $30,000 / ($25 - $10)

= 2,000 units

Therefore, the break even point in units is 2,000 units.