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1. How will you allocate the fixed costs across the products?

1. How will you allocate the fixed costs across the products?

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter15: Lean Accounting And Productivity Measurement
Section: Chapter Questions
Problem 25P: Continuous improvement is the governing principle of a lean accounting system. Following are several...
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Break-even analysis attempts to determine the volume of sales necessary for a manufacturer to cover costs, or to make revenue equal costs. It is helpful in setting prices, estimating profit or loss potentials, and determining the discretionary costs that should be incurred. The general formula for calculating break-even units is: Total Fixed Costs Break-even Units = Unit Selling Price-Unit Variable Cost In StratSim, total fixed costs can be broken into discretionary marketing expenditures, and fixed costs for plant and overhead. The selling price is the MSRP less the dealer discount, and the cost of materials and labor make up the variable cost. In this assignment, you will allocate fixed costs across a portfolio of products and calculate the break-even units for each product. A firm's production capacity is 1.5 million units, with annual fixed costs of $3.2 billion for depreciation, plant maintenance, corporate marketing, and general overhead. Additional values for the three vehicles produced and sold by the firm are shown in the table below: VEHICLE X VEHICLE Y VEHICLE Z MSRP $15,999 $20,999 $25,999 Dealer Discount 10% 12% 15% $11,799 $35 million $13,599 $50 million $16,899 $70 million Variable Cost Adv. & Promo. Prev. Unit Sales 400 thousand 600 thousand 300 thousand 1. How will you allocate the fixed costs across the products?
Transcribed Image Text:Break-even analysis attempts to determine the volume of sales necessary for a manufacturer to cover costs, or to make revenue equal costs. It is helpful in setting prices, estimating profit or loss potentials, and determining the discretionary costs that should be incurred. The general formula for calculating break-even units is: Total Fixed Costs Break-even Units = Unit Selling Price-Unit Variable Cost In StratSim, total fixed costs can be broken into discretionary marketing expenditures, and fixed costs for plant and overhead. The selling price is the MSRP less the dealer discount, and the cost of materials and labor make up the variable cost. In this assignment, you will allocate fixed costs across a portfolio of products and calculate the break-even units for each product. A firm's production capacity is 1.5 million units, with annual fixed costs of $3.2 billion for depreciation, plant maintenance, corporate marketing, and general overhead. Additional values for the three vehicles produced and sold by the firm are shown in the table below: VEHICLE X VEHICLE Y VEHICLE Z MSRP $15,999 $20,999 $25,999 Dealer Discount 10% 12% 15% $11,799 $35 million $13,599 $50 million $16,899 $70 million Variable Cost Adv. & Promo. Prev. Unit Sales 400 thousand 600 thousand 300 thousand 1. How will you allocate the fixed costs across the products?
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