Management

This is useful for management, because it helps them to determine if this decrease in prices will have an impact upon the overall bottom line. Once they have determined this, they can be able to take steps to protect the company's profit margin

Conclusion

This is important, because it highlights an effective tool that managers can use to address the underlying challenge they could face.

One of the assumptions underlying CVP analysis is that total costs remain constant over the relevant range of activity. What does this mean and how does fixed costs per unit per lamp unit change with increased production over the relevant range of activity? Provide your answer in about 200 words in the international memorandum mentioned below.

Subject: Fixed Cost per Unit

Introduction

CVP production will help managers be able to effectively monitor costs and determine the underlying impact that they will have on the profit margins.

CVP Analysis

The increased cost per unit will depend upon the volatility in the costs, in association with the product. Where, cost increases could erode the profit margin, while cost decreases could result in an improvement.

Conclusion

These different elements are important, because they highlight the underlying effect that this can have on an organization's profits. As a result, managers will use this as tool to carefully monitor what is taking place.

Calculate the unit cost for each product using direct labor hours as the basis for applying overhead (i.e. The Plantwide approach).

The unit cost for amateur bicycles using direct labor is $2.00. While, the unit cost for professionals is $3.00. (Mehta 2010)

Calculate the unit cost for each product using activity-based costing (i.e. ABC approach)...

(Mehta 2010)
Discuss the weaknesses of Plantwide overhead costing approach and the merits of an activity based overhead costing system. Use your calculation from requirement 1 and 2 for this question to demonstrate the specific effect of each costing method on (1) the accuracy of each product cost (2) the new selling prices and marketability of each product for the new selling prices with the current percentage under the mark up method, (3) the true per unit and monthly profitability of each product for the current and new selling price, and (4) each decision about future production planning and budget allocation of resources for each of the two products. Your discussion should be a maximum of 1,000 words.

The cost method helps to improve the accuracy by providing a real time figure (20%), to establish the selling price. The mark up method helps to improve flexibility, by allowing for prices to be adjusted. This improves the true per unit and monthly profitability figures, because it can increase the accuracy of these numbers. Future budget production / planning should be allocated based upon, the underlying demand for both products.

Bibliography

Contribution Margin, 2010, Dynamic Business Plan. Available from: [30 October 2010].

Contribution Margin Ratio, 2009, Accounting for Management. Available from: [30 October 2010].

Cost Volume Profit Analysis, 2010, Cliffs Notes. Available from: [30 October 2010].

Mehta, S, 2010, How to Calculate Cost Per Unit. Available from: [30 October 2010].

Harvard Format. http://libguides.library.uwa.edu.au/data/files2/49275/Harvard%20LibGuide%20-%20All%20Examples%20PDF.pdf