JET2 Task 4 Essay

1503 WordsSep 11, 20137 Pages
To: Vice President It would be in Competition Bikes, Inc.’s best interest to change from a traditional costing system to an activity-based costing system. In this summary you will find information as to why this change is important as it will highlight the differences between traditional based costing and activity based costing systems. This summary will also give you further findings on Competition Bikes, Inc. breakeven point when evaluating the sales units and the sales dollars and also the influence direct materials and fixed costs have on the breakeven analysis performed. Costing Method The traditional costing method is a distribution of manufacturing overhead costs to the actual products manufactured. By using this…show more content…
to simply identify variations in product costs and pinpoint the variation directly to the source. This helps the company keep control of the company’s costs and expenses. This assists in keeping profits relatively steadily. The current operations can also be improved by implementing a just-in-time inventory management system. This is where the company only buys the materials that it needs to produce the units that are actually sold. This cuts down on dollars that are tied-up in inventory held in raw materials inventory. This is a considerable amount for Competition Bikes, Inc. and will be lowered enormously as fewer materials are placed in raw materials. This will be billed in the same month in which they are produced creating fewer dollars to be tied up in inventory. This will then be converted to cash to be used as working capital. Breakeven Point According to Investopedia the breakeven point is the point at which gains equal losses. For Competition Bikes, Inc. achieving the breakeven point is a leap in the right direction. This will allow them to be one step closer to being a profitable business. Here we will analyze the sales units and the sales dollars of the Titanium and CarbonLite bike models in order to configure the breakeven point. In order to construct the breakeven point we must use the weight average contribution margin. This is calculated by dividing the combined contribution margin

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