Case Study On Cost Accounting

Decent Essays
Cost accounting is a type of accounting process that aims to capture a company's costs of production by assessing the input costs of each step of production as well as fixed costs such as depreciation of capital equipment. Cost accounting will first measure and record these costs individually, then compare input results to output or actual results to aid company management in measuring financial performance (Cost Accounting, n.d.).

Variable cost
A variable cost is a corporate expense that varies with production output. Variable costs are those costs that vary depending on a company's production volume; they rise as production increases and fall as production decreases (Variable Cost, n.d.); in the case study for all cost per event such
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As, in this case study as the total revenue is $22,500,000 and the total events is 5000 events therefore revenue per event is $4,500 ($22,500,000/5000), therefore, the contribution margin per event is $1,900 ($4,500 - $2,600) and as the contribution margin ratio is contribution margin/revenue; therefore the contribution margin in this case is 42% ($1,900/$4,500).

Break-even point.
Break-even point analysis is a measurement system that calculates the margin of safety by comparing the amount of revenues or units that must be sold to cover fixed and variable costs associated with making the sales. In other words, it’s a way to calculate when a project will be profitable by equating its total revenues with its total expenses. There are several different uses for the equation, but all of them deal with managerial accounting and cost management (Break-Even Point, n.d.)
We can use the following formula to calculate breakeven point:
Fixed Costs ÷ contribution margin per event = Breakeven Point in Units
In the case study, as the annual fixed cost is $6,000,000 and the contribution margin per event is $1,900. Therefore, the breakeven point is at the 3,158
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Hence in the above computation, I had taken an assumption that the data provided on the top line is annual figures.
The case study also seems to take an assumption that every event is under the same scale hence the variable cost per event for similar expense category (such as table arrangement, floral, soft drinks and snacks costs, temporary staff wage, etc.) are having the same amount.

Missing data in the case
In the case study did not take other costs into considerations such as running costs of trucks and vehicles, it only provides the annual allocated costs (depreciation costs), however, the more events that the client service, this will end up having higher running costs of the trucks and vehicles such as parking, petrol, diesel, etc.
The case study also did not state interest costs should there any borrowing hence assume that the working capital is all from equity financing.
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