Financial Analysis Task 4
A1. Costing Method
In order for a company to succeed and be successful, it is very important for the company to understand the difference between profit and cost of goods. There are costing tools that can help a business figure out what the cost of product is during the manufacturing process. These tools are beneficial for a company to figure out how much profit can be made. These tools take the cost of manufacturing the unit and subtract it from the sale price of the product. Having this information, the profit per unit, is very beneficial for a company to know which products they should produce more heavily, or which ones to eliminate. I want to discuss two costing methods that are beneficial to a…show more content…
This is where activity-based costing is very beneficial. Activity-based costing is process of calculating direct charges, the same way traditional costing does it, but you will calculate the overhead costs a different way. In the traditional costing process, the rational split were combined to get the overhead cost. In activity-based costing, to get the overhead cost, you only add together activities to get your overhead cost. For Competition Bikes Inc., they have $282,985 for CarbonLite, and $188,415 for titanium in overhead costs. Now when you calculate the unit cost with the new overhead costs, you get $1,460 for CarbonLite, and $656 for titanium. The profits per unit are $35 for CarbonLite, and $244 for titanium.
When the traditional costing process was used, it was evident that the profits per unit were very similar. However, when you used activity-based process, it was quite clear that the profit was much larger on titanium than was expected, and it was much lower for CarbonLite than expected. I suggest that Competition Bikes Inc., use activity-based costing to get way more accurate results.
A2a. Breakeven point
It is essential for a company to know how to make a profit in order to succeed. It makes planning for the future of a company much easier by knowing how much profit it is going to make in the future. This aids in the company knowing how much to sell product for, how many employees are required, when products should be upgraded, and when