Fixed Costs are the rent paid for the production facility, the utility bills, some salaries (the doorman, the secretary, the guards or even the manager), and accounting, legal and consultancy bills. On the other hand, Variable Costs are incurred by the acquisition of raw materials (flower, sugar, baking soda etc.), packaging materials, distribution costs, the salaries of the kitchen staff or various taxes.
I have prepared two tables wherein I have calculated the Fixed, Variable and Total Costs for the first and the second alternatives. In the first case, the Total Variable Costs amount to $11,900, while the Total Costs reach $16,900. The Cost for one unit (bar) is 99 cents.
Total
Washington
New York
Los Angeles
Demand
17,000
10,000
5,000
2,000
Production capacity
20,000
Production
17,000
Fixed Costs
5,000
Variable Costs/unit
Variable Costs
11,900
Total Costs
16,900
Costs per unit
0.994117647
Price
evenue
34,000
Profit
17,100
The second alternative implies total Fixed Costs of $9,000, much more than in the first case, $10,200 worth of Variable Costs, Total Costs of $19,200 and a Cost per unit of…...
mla
Reference:
1. Costs: Fixed, Variable and Sunk Costs - Theory www.bol.ucla.edu/~lvlex/
fixed costs that Cat and Dogs, Inc. have include rent and executive salaries, which are paid no matter how many units the company builds. The company's total fixed costs are $113,200 per month. Variable costs are the factory labor and raw materials, which are $2.20 per unit ($1.50 labor plus $.70 raw materials). The company's gross profit margin per unit is 72.5%, calculated as $5.80 ($8.00 per unit sales price less $2.20 per unit cost to manufacture) divided by $8.00. The sales necessary to break even are $156,137.93. At $8 per unit, this works out to be 19,518 units, rounded, since it's not possible to make a partial unit. The following table describes the income and expenses expected by Cats and Dogs, Inc. If they sell 19,518 units:
Income (19,518 $8 units)
variable and fixed costs?
There are plenty of differences between 'fixed costs', and 'variable costs'. While variable costs are those that can be varied according to the changes taking place, fixed costs are those costs of investment goods that are used by the firm or company, with the idea that it would only be through wearing them out by way of the production of goods or by services for sale that they can eventually be recovered, in the long-term. (Fixed and variable costs: William-King) This means that the basic lesson for all entrepreneurs is that all entrepreneurs generally have some basic fixed costs that must be paid, no matter how many products they would be offering for sale, while at the same time, variable costs change according to the number of products that are being offered for sale. It is through a learned process of identification and control of their…...
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REFERENCES
"Bean Counter, Break-even analysis" Retrieved From
Downsizing/Fixed Costs
There are a number of industries that have downsized their fixed costs. Most manufacturing industries, for example, have downsized fixed costs by offshoring work, reducing the size of their workforce or by making adjustments to their pension commitments. Industries such as auto manufacturing, airlines and banks have all taken advantage of the opportunity to lower their fixed costs. Government agencies have also undertaken downsizing in recent years, again with an eye towards lowering fixed costs.
A reduction in fixed costs does not necessarily impair a company's ability to meet the needs of its customers. In many cases, the restructuring was necessary to modernize the way the company does business. In other cases, firms like Eastman Kodak have downsized because they have fewer revenues. This means that the downsizing will not affect their service levels because there are fewer customers to serve. Companies like the automakers that have restructured the fixed…...
For instance, suppose Sam Smoothtalk thinks about accepting the 300 unit offer at $295 per unit. Suppose the company who makes the offer is willing to sign an agreement to buy 300 units each month. That means that the probability quotient is 1 (the sale is a sure thing). Suppose that Sam thinks that the probability of such an offer being available each month is roughly 50%. If he tells Mr. Pecos about his opinion and Mr. Pecos (after eventually consulting the controller, Mr. Ledger) arrives to the same conclusion), then the probability factor would be 0.5. Therefore, the number of units that might be sold is:
300 (units) X 12 (months) X 0.5 (the probability factor) = 1,800 (units per year)
Add that to the initial estimate (10,000 at the beginning of the year and 11,000 after the first month) and you get 11,800 and 12,800, respectively. Compare the…...
Common costs are allocated when the cost falls under federal auspices. Costs that are the responsibility of the state, such as the 55% share of the San Luis Unit, are not included in the allocation base. Non-reimbursable costs are also not included in the allocation base and are ultimately the responsibility of the taxpayer. Some other costs are also not allocated, or are subject to unique allocation methods. These are also excluded. These include interest during construction and safety of dams' improvements.
Allocating costs for internal decision making allows managers to perform a more effective cost-benefit analysis on each project. The allocations are done on the basis of reimbursable costs. It is important for managers to understand how much of a project's cost structure is not reimbursable. However, for these public works projects, managers also need to understand the cost for each in order to make decisions with respect to utilization.…...
The service offered relies on high level of capital investments in aircraft, as well as the support services. The variable cost per passenger is relativity low. The airlines will seek to minimize their variable costs as the same time as using the capital investments in a wise manner to maximize revenues. One example of this is Southwest Airlines, the founder of the low cost carrier model, where the variable costs are minimized with a no frills service.
The challenge faced by airlines is the sell sufficient seats on each aircraft to ensure that they break even or make a profit; this is due to the high fixed cost. One approach that been the used is dynamic pricing in order to manage the demand for the flights. If a particular flight is selling well and appears to be in demand, the price of the seats will remain high as the airline…...
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References
Baye Michael, (2007), Managerial Economics and Business Strategy, McGraw-Hill/Irwin
Chadwick L (2007), Essential Management Accounting, London, Routledge
Nellis JG, Parker D, (2006), Principles of the Business Economics, London, Prentice Hall
Efficiency and Cost of Production
Production efficiency is defined as the level at which a company is no longer capable of producing additional amounts of a commodity or good devoid of lowering the level of production of another product. Efficiency in production is attained and realized when a product is manufactured and formed at its least average total cost. It outlines sufficient production devoid of wasting important resources (Investopedia, 2016). In delineation, economies of scale are the factors that make the average cost of commodity production and manufacture to decrease as the volume of its output rises (The Economist, 2008). Internal economies of scale are cost savings that accrue to a company irrespective of the market, industry or setting in which it operates. On the other hand, external economies of scale are those that profit a company owing to the manner in which its industry is organized (The Economist, 2008). In…...
Apple's cost of production includes both the cost of goods sold and the fixed costs associated with running its operation. The company's business model is that it handles the design and marketing of its products, and then contracts a third party company to produce them, usually in China. Apple maintains a gross margin of 39%, and this up from 37% in 2013, which is a reflection of the company's pricing power in the market as much as anything else. Component costs for Apple's flagship phones have been broken down and one of the trends that stands out is that the larger phones carry with them higher margins. For example, the 7 Plus carries with it $84.50 more in gross profit for the company (Mayo & Mayo, 2017). The components are slightly more expensive, and the company charges significantly more for the device. This perhaps explains the upward creep in the…...
There is a fixed amount of output possible for any given investment in production capacity, at all possible costs, and if we plot all the potential scales of output against the resulting average cost per unit of production, the result is a long run average total cost curve (LRATC). These economies and diseconomies of scale cause the LRAC to fall from a high origin to a minimum point, and then (theoretically) eventually begin to rise, where there is a minimum where slope is zero. This is the optimum enterprise scale (Petroff, 2002 n. pag.). Each combination of output and average per-unit cost represents a discrete, short-term, short-run ATC curve for that level of production, and optimum firm size is the SRATC curve where unit cost is minimal (7 units at 32$ each, in Table 6), the MC cost curve crosses both LRATC and SRATC, no other firms enter to…...
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Works Cited
Ben-Akiva, Moshe (2008). 'Theory of the Firm.' OpenCourse Ware, Massachussetts
Joint costing systems should bear in mind the legal constraints on the use of such systems, and should provide accurate information to managers in order to be most useful in the managerial accounting context.
Firms need to remain competitive, which indicates that the market will set prices to some degree. This implies that firms can make better decisions with respect to what projects/products they wish to pursue by understanding the cost structure of the product. If the product is not viable at the cost at which it can be produced, then the firm can improve profitability by dumping the product.
orks Cited:
Banham, R. (2000). Off target? CFO Magazine. Retrieved April 5, 2011 from http://www.cfo.com/article.cfm/2990860/c_3046531?f=magazine_alsoinside
Frederick, S. (2011).
The persuasive power of opportunity costs. Harvard Business Review. Retrieved April 5, 2011 from http://hbr.org/2011/01/column-the-persuasive-power-of-opportunity-costs/ar/1
Katz, D. (2002). Activity-based costing (ABC). CFO Magazine. Retrieved April 5, 2011 from http://www.cfo.com/article.cfm/3007694
McKinsey & Co. (2004). Pricing new products. CFO Magazine.…...
Dibsa should turn towards the market-based pricing strategy, which sees the implementation of competitive prices for the 3-in-1 Lawnmower. The selection of this combination of strategies would generate several impacts upon the company, but most of them would be obvious at product lifecycle level. In this order of ideas:
The sales revenues would be significantly high throughout the first six months and they would allow the company to cover for the large costs incurred in the manufacturing of the product as well as register profits; they would however decrease with the implementation of the market pricing strategy and the 3-in-1 Lawnmower would metamorphose from a star product into a cash cow
The costs incurred in the manufacturing of the new lawnmower have already begun to decrease and will continue to do so; the actual impact of the pricing strategy is limited, with the specification however that these costs will not be…...
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References:
Berman, K., Knight, J., Case, J., 2006, Financial Intelligence: A Manager's Guide to Knowing what the Numbers Really Mean, Harvard Business Press
Bolander, S.F., Gooding, C.W., Mister, W.G., 1999, Transfer Pricing Strategies and Lot Sizing Decisions, Journal of Managerial Issues, Vol. 11
CVP is very useful for small business also because the analysis takes
into consideration variables like eturn on Investment, or Customer
Acquisition Cost. This analysis allows the company to determine what the
maximum profit volume can be, and how the above mentioned variables can be
changed in order to become successful.
CVP analysis is also able to determine the results of media campaigns,
especially for small business, where results are more visible and can be
observed after a shorter period of time. Furthermore, these results can be
translated into a successful company strategy, given the fact that the
strategy would be based on verified results. In relation to this, market
share can increase due to such a strategy.
For small business, CVP analysis is also used in establishing the
company's budget for certain activities. The analysis is able to provide a
flexible budget variant, which is exactly what a small company needs, given
the fact that environmental changes affect small companies more than they
affect…...
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Reference list:
1. Cost Volume Profit Analysis (2008). Business Owner's Toolkit.Retrieved May 14, 2008 from 00.2. CVP Analysis (2008). Wikipedia, the free encyclopedia.Retrieved May 14, 2008 from http://en.wikipedia.org/wiki/CVPanalysis .3. Kee, Robert (2007). Cost volume profit analysis incorporatinghttp://www.toolkit.com/smallbusinessguide/sbg.aspx?nid=P0675
Behavior
There are some differences between the income statements when compiled under absorption costing and under contribution margin. In this instance, the basic income statement is compiled without knowing the costs that go into the absorption costing. One of the differences is that absorption costing reflects the costs of all the activities that go into the production of the good. So when you have an income statement produced under absorption costing it will look as follows:
evenue
COGS
Gross Profit
SGA Exp
Net Income
The fixed costs are $800,000, so the contribution margin income statement would be as follows:
evenue
COGS
Gross Profit
Fixed Costs
Net income
350000
For the next quarter, if production is 50,000 units, the absorption statement would be:
evenue
2500000
COGS
1800000
Gross Profit
700000
SGA Exp
350000
Net Income
350000
This statement reflects the fact that 50,000 units were produced, which is double the expected sales. The following statement reflects the contribution margin approach:
evenue
2500000
COGS
3150000
Gross Profit
-650000
SGA Exp
800000
Net Income
-1450000
Both income statements show that the company lost money.
Managerial Accounting for Sleepease Ltd.
"Identify, discuss and critically evaluate the advantages and problems of using the following costing methods for internal reporting purposes":
absorption costing; marginal costing.
"Refer to the Sleepease case as and when necessary"
absorption costing
The absorption costing is the type of managerial costing where both the variable and fixed costs are charged to process or product. Thus, "absorption costing is a method for appraising or valuing a firm's total inventory by including all manufacturing costs as product costs, regardless of whether they are variable or fixed and therefore it is frequently referred as the full cost method." (Nawaz, 2013 p 50).
Accordingly, the company will be able to determine costs of a product after determining both the variable costs and fixed costs. Sleepease will derive several benefits from using the absorption costing for the production of their product.
First, the absorption costing will assist the company to take the account of all…...
1. Business Profitability: The Role of Cost Analysis
This essay examines the critical role of cost analysis in determining business profitability, exploring techniques such as cost-volume-profit analysis and break-even point calculation.
2. Revenue Optimization and Profit Enhancement
This essay investigates the strategies used to optimize revenue and increase profitability, including pricing analysis, demand forecasting, and sales performance evaluation.
3. Profitability Impact of Capital Budgeting and Investment Decisions
This essay analyzes the mathematical principles behind capital budgeting and investment decisions, highlighting the potential impact on business profitability.
4. Cash Flow Management: A Key Determinant of Profitability
This essay emphasizes the importance of cash flow management in ensuring business....
The measurement of competition within the civil aviation sector has been a focal point for numerous studies, aiming to understand market dynamics, regulatory impacts, and economic outcomes. One of the seminal works in this area is by Button and Taylor (2000), who discuss the complexities of competition in airline markets, focusing on how different metrics like the Herfindahl-Hirschman Index (HHI) can be applied to assess market concentration and competition levels. Their analysis underscores the importance of considering both route-specific and network-wide competition, highlighting the limitations of traditional metrics when applied to the aviation industry due to its unique characteristics such....
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