Both the break even point for sales in dollars and the break even point for number of unit sales has reduced. The fact that this number has lowered is a good sign for the company. This simply means that they would have to sell less number of units or earn lower revenue to reach the break even point. The net income at the end of the statement has increased as well, which again is good.
Contribution Margin = (Unit selling price – unit variable cost) / unit selling price = ($9.00 – $2.60) / $9.00 = 0.7111 = 71.111%
We will examine the given data from the case and compare the unit costs from the company’s current costing system (traditional costing) and from activity-based costing. We will also highlight other qualitative data in consideration with the numerical factors that may result to a significant change on our recommendation.
Hence we can Estimated Indirect (overhead) cost per unit is quite different for each product, unlike the traditional costing where indirect costs per unit were the same for all four products. This approach recognizes that product W uses more activity pool resources than product X , product Y and product Z .
From the overhead analysis completed, it analysis six overhead items with associated costs. This analysis also compares numbers from traditional based costing vs activity based costing. With traditional based costing the analysis shows a total product cost number of 641,320 for Titanium bikes, where as ABC method shows a total product cost as 590,715. There is a difference for Carbon bikes as well. The traditional method shows a 679,380 where the ABC method shows a total product cost of 729,985. These numbers show that Competition Bikes could be overpricing the titanium bikes and could afford to lower the cost in order to be more competitive in the marketplace and maybe even bring in more revenue than previous years. As for the Carbon bikes the analysis states that using the traditional method that total product cost was at 679,380. Once the same analysis for total product cost using ABC method for Carbon bikes shows that number to be 729,985. This knowledge gained from getting a better understanding of each bikes specific costs can really help price the product better so that Competition Bikes remains more competitive in the industry.
Variable costs are expenses directly associated with the product or service e.g. raw materials, components, packaging.
Another variable cost to consider is continuing education and training for employees. Like any business, it is important for those in the health and fitness field to stay on top of current trends in the industry. From time to time it may be beneficial and necessary for full-time employees to attend seminars or training sessions to expand their knowledge in the industry. This is a good example of a cost that would not be incurred on a regular basis, but should be budgeted for at least once a quarter. Two variable costs that organizations overlook are office supplies and fuel. In every organization employees use office supplies. In many organizations fuel is needed for
Suppose its average cost is $15 and its average variable cost is $8. Its contribution margin (i.e., contribution to fixed cost) is
The purpose of break-even analysis is to determine the number of units of a product to sell that will
Hasan, M. S. (2016). VARIABLE COSTING AND ITS APPLICATIONS IN MANUFACTURING COMPANY. International Journal of Information, Business and Management, 8(2), 145-157. Retrieved from http://prx-herzing.lirn.net/login?url=http://search.proquest.com.prx-herzing.lirn.net/docview/1778467564?accountid=167104
For instance, a business that uses the variable costing approach allows the management to analyze the actual production costs, and this allows controlling costs since one can identify the differences between the actual and budgeted amounts. Additionally, through variable costing the management focuses on controlling costs to establish better cost control practices. It is easier to control the variable production costs compared to fixed production costs, and the appropriate level of management then makes
The variable cost rate (per unit) remains constant, however the total variable costs increase or decrease as the volume changes (within a relevant range).
3 variable costs indentified, they are power, operations, material. They are proportional to the revenue intake.
Cost Audit may be defined as "the verification of cost records and accounts and a check on the adherence to the prescribed cost accounting procedures and the continuing relevance of such procedures.”(Ref. A Textbook of Financial Cost and Management
It is forecasted that year one’s contribution margin will be $55,000 and will have a stable annual growth of $15,000 in contribution margin for the next four years. The return of investment period will be at year three of its operation.