...Less: Average variable cost per passenger $(70) Contribution Margin per passenger $90 Contribution Margin = Per Passenger fare - Variable cost per passenger Contribution Margin ratio 56.25% Contribution Margin Ratio = Contribution Margin Per Passenger / Average full passenger fare x 100 Fixed operating cost per month $3,150,000 Breakeven point in passengers 35,000 Breakeven point in passengers = Fixed operating cost per month / Contribution Margin per passenger Breakeven point in revenue $5,600,000 Breakeven point in revenue = Fixed operating cost per month / Contribution Margin ratio B: Breakeven point in passengers per month 35,000 Number of seats per passenger train car 90 Total train car needed 388.89 Total Cars Needed = Breakeven point in passengers per month / Number of seats per passenger train car At Average load factor (percentage of seats filled) 70% Break-even point in number of passenger train cars per month 556 Break-even point in number of passenger train cars per month = Total train cars needed / Load factor C: Average full passenger fare $190 Less: Average variable cost per passenger $(70) Contribution Margin per passenger $120 Contribution Margin = Per Passenger fare - Variable cost per passenger Contribution Margin ratio 63.16% Contribution Margin Ratio = Contribution Margin Per Passenger / Average full passenger fare x 100 Fixed operating cost per month $3,150,000 Breakeven point in passengers...
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...costs into fixed and variable components. Answer: True Difficulty: 1 Objective: 1 Terms to Learn: cost-volume-profit (CVP) analysis 2. Cost-volume-profit analysis may be used for multi-product analysis when the proportion of different products remains constant. Answer: True Difficulty: 1 Objective: 1 Terms to Learn: cost-volume-profit (CVP) analysis, sales mix 3. It is assumed in CVP analysis that the unit selling price, unit variable costs, and unit fixed costs are known and constant. Answer: False Difficulty: 2 Objective: 1 Terms to Learn: cost-volume-profit (CVP) analysis It is assumed in CVP analysis that the unit selling price, unit variable costs, and total fixed costs are known and constant. 4. In CVP analysis, the number of output units is the only revenue driver. Answer: True Difficulty: 2 Objective: 1 Terms to Learn: cost-volume-profit (CVP) analysis, revenue driver 5. Many companies find even the simplest CVP analysis helps with strategic and long-range planning. Answer: True Difficulty: 1 Objective: 1 Terms to Learn: cost-volume-profit (CVP) analysis 6. In CVP analysis, total costs can be separated into a fixed component that does not vary with output and a component that is variable with output level. Answer: True Difficulty: 2 Objective: 1 Terms to Learn: cost-volume-profit (CVP) analysis 7. In CVP analysis, variable costs include direct variable costs, but...
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...JET2 – Task 4 Financial Statement Analysis Managing Internal Cost & Controlling Finances Summary Report In response to a request from the Vice President of Competition Bikes for an analysis and recommendation regarding Activity Base Costing, as well as a request for a break-even analysis with projections of the company’s target profit, I have developed the following report. 1. Costing Method Evaluation Traditional Costing and Activity Based Costing (ABC) are the two systems we will evaluate in relation to Competition Bikes’ operations. To do so, we will need to look at the advantages and disadvantages of both systems. Costing systems are used to help predict the profitability of a product and help establish the cost of a product correlated to the income it generates. Traditional costing allocates overhead according to the amount of a particular cost driver, for example, how many direct labor hours are required to manufacture a product, while activity based costing looks at each activity and assigns a cost to it. Traditional costing separates costs into direct and indirect categories. The costs of labor or of raw materials would be examples of direct costs. Then, traditional costing divides the total cost of a product by the direct labor cost. This gives us the estimated cost of the product per item. However, increasingly in today’s business environment, the proportion of direct costs have fallen in relation to the proportion...
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...revenues as being linear throughout the relevant range of activity 2. Costs categorized as either fixed or variable costs 3. The only factors that change affecting costs are fluctuation in activity 4. Inventory levels will not change 5. The sales mix of products will not change Furthermore, there are standard components that determine CVP analysis such as volume of sales, the unit selling prices, the variable cost, and fixed costs. Sales price per unit The sales price unit indicates the price at which each unit of inventory is sold for. Here are the following sales prices for each of the items sold at a Pizza Hut venue in 2012. Pizza $16.50 Chicken Meals $9.00 Side Dishes $3.00 Desserts $2.50 Beverages $2.00 Volume sold The volume sold is the number of individual inventory or total sales of a company within a particular timeframe. In the case of Pizza Hut, the volume sold for the 7556 U.S locations was recorded in 2012 as: Specific Inventory | Amount sold in individual stores | Amount sold in USA | Pizza | 825,227 | 6,235,415,212 | Chicken Meals | 508,926 | 3,845,444,856 | Side Dishes | 411,708 | 3,337,545,648 | Desserts | 139,890 | 1,057,008,840 | Beverages | 721,926 | 5,454,827,856 | Total Amount Sold | 2,607,677 | 19,930,242,412 | Variable costs Variable costs are incurred for every unit of volume, as a result the total variable costs change according to the...
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...JET2 Financial Analysis Task 4 WGU By Kat-Johnson | Studymode.com Competition Bikes Inc. Storyline Managing Capital & Financial Assets 04/12/2014 WGU JET2 Financial Analysis Task 4 - PASSED To: Vice President The following is a summary report to recommend whether Competition Bikes should change its traditional costing method to activity based costing, and an analysis of the breakeven point with regards to sales units and dollars for both CarbonLite and Titanium bikes. It also discusses the impacts to the breakeven point. The cost-volume-profit evaluation and the traditional vs activity based costing method overhead analysis were used for the review and analysis. Traditional Based Costing vs Activity Based Costing Traditional Based Costing Method (TBC). TBC uses one rate, the overall cost of production, to estimate costs based on the revenue production created. Unlike ABC, manufacturing costs in TBC are only assigned to sold merchandises and do not account for nonmanufacturing costs such as administrative costs. This method is general not as accurate as ABC as it does not account for costs specifics to the level of products. For Competition Bikes, the company can see its manufacturing overhead is $239,020 for the Titanium bikes, and $232,380 for the CarbonLite bikes for a total of $471,400 in overhead costs. This means the unit cost for each is $713 for Titanium bikes, and $1359 for the CarbonLite bikes. Activity Based Costing Method (ABC). ABC determines and...
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...Professor May Spring 2013 By: Madhur Mittal, Ishaq Rehman, Ying Wang and Bohan Li Question 1 Breakeven is a point at which a company covers all its costs and its profit is zero. After reviewing Hallstead Jewelers Income Statement, operational statistics, and table 2 and 3, for fiscal years 2003, 2004, and 2006, we can see a slight change in the breakeven unit and dollar amounts between the fiscal year of 2003 when compared to 2004. At the same time we also examine a major change when comparing the breakeven points of the fiscal year 2004 to 2006. This can be seen in Tables 1, 2, and 3. Hallstead Jewelers | Income Statement | For the years 2003, 2004, and 2006 (In thousands) | | 2003 | 2004 | 2006 | Total Sales | $8,583 | $8,102 | $10,711 | Variable Costs | | | | Cost of Goods Sold | $4,326 | $4,132 | $5,570 | Commissions | $429 | $405 | $536 | Total Variable Costs | $4,755 | $4,537 | $6,106 | Contribution Margin | $3,828 | $3,565 | $4,605 | | | | | Fixed Costs | | | | Salaries | $2,021 | $2,081 | $3,215 | Advertising | $254 | $250 | $257 | Administrative Expenses | $418 | $425 | $435 | Rent | $400 | $400 | $750 | Depreciation | $84 | $84 | $142 | Miscellaneous Expenses | $53 | $93 | $122 | Total Fixed Costs | $3,230 | $3,333 | $4,921 | | | | | Net Income | $598 | $232 | $(316) | ...
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... Accounting and Financial Studies (BAFS) Curriculum 1 Learning Outcomes Upon completion of this course, teacher participants should be able to: •apply cost‐volume‐profit analysis techniques to ascertain the inter‐relationships among costs, selling price, units sold, breakeven point, target profit and margin of safety; •state the assumptions and limitations of cost‐volume‐ profit analysis; •identify and differentiate relevant costs and irrelevant costs in different business scenarios; and •make recommendation to short‐term business decisions. 2 Syllabus in HKDSE Examination • Identify the nature of various cost items and their relevance to decision‐making: sunk costs, incremental costs and opportunity costs. • Apply costing concepts and techniques in business decisions, e.g. “hire, make or buy”, “accept or reject an order at a special price”, “retain or replace equipment”, “sell or process further” and “eliminate or retain an unprofitable segment”. • Conduct cost‐volume‐profit analysis to assess the effects of changes in costs, selling price and units sold on the What‐if analysis breakeven point and target profit. 3 Contents • • • • • • • • • • • • 4 Breakeven point Sale level required to achieve target profit Margin of safety What‐if analysis (Illustrations 1 & 2) Sales mix (Illustration 3 & 4) Relevant costs vs. irrelevant costs (Illustrations 5 & 6) Accept or reject an order (Illustration 7) Hire decision (Illustration 8) ...
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...unit: Units sold: 410000 Price per unit: $68 $60 Fixed costs: $1,640,000 Revenue = Revenue = Total Variable Cost = Total Va 1. a. Contribution margin Contribution Margin = Total Revenues - Total Variable Costs Contribution Margin = $27,880,000 - $24,600,000 Contribution Margin = $3,280,000 b. Operating Income Operating Income = Total Revenue -Total Var. Costs - Fixed Costs Total Revenue Total Variable Cost Fixed Costs Operating Income 2. Effect of New Equipment Units sold: Price per unit: Var. cost per unit: Fixed costs: 410000 $68 $54 $5,330,000 Revenue = Revenue = Total Variable Cost = Total Va New Contribution Margin= $5,740,000 New Operating Income = $410,000 3. Garret should not accept the proposal because operating income will decrease by $1,230,000. This is becaus in 20. CVP Exercises Units Sold: Cost per Unit: Var. Cost per Unit: Fixed Costs: 1. a. Total Revenue Total Variable Costs Fixed Costs 5000000 $0.50 $0.30 $900,000 $2,500,000 $1,500,000 $900,000 Operating Income $100,000 b. Breakeven Point in Revenues Breakeven Revenues = Fixed Costs ÷ Contribution Margin % Breakeven Revenues= $900,000 ÷ 40% Breakeven Revenues = $2,250,000 2. .04 per unit increase in variable cost Units Sold: 5000000 Cost per Unit: $0.50 Var. Cost per Unit: $0.34 Fixed Costs: $900,000 Total Revenue Total Variable Costs Fixed Costs Operating Income $2,500,000 $1,700,000 $900,000 -$100,000 3. 10% increase in fixed costs and units sold Units Sold: 5500000 Cost per...
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...JET TASK 4 A1: Costing Method Report to the Vice President recommending whether the company should change its cost method - to activity based costing. Activity based costing is a method used in identifying activities companies perform thereby assigning indirect costs to products. Activity based costing (ABC) system recognizes the relationship between costs, activities and products, assigning indirect costs to products. (Investopedia, 2014) Competition Bikes, Inc. report to the Vice President follows on cost method change from traditional costing to activity based costing. Traditional cost entails one rate, activity based costing involves multiple steps. In activity based costing each activity and estimate of cost total and indirect must be computed. The cost driver for all activities will be estimated with the total quantity of each driver’s allocation base. When the driver’s allocation base is established the cost of each activity is determined. Then the cost to cost objectives are established. Activity based costing focuses on the company’s activities. Utilizing the measures the cost of the products and services are then determined. Activity based cost allows for a more accurate forecasting of the future cost of the product and service. Product cost will be more time consuming utilizing activity based costing, but it provides more accuracy of actual cost. Activity based costing will assist in making the profit margin increase in making better decisions for...
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...cause and effect relationship between costs and the activities that drive costs. Traditional costing systems have a tendency to assign indirect costs based on something easy to identify (such as direct labor hours). This method to assigning costs can be very inaccurate, as there is not necessarily a relationship between the costs that are being assigned, and the activity they are being assigned to (Bradford, 2008). Clearly, this causes inaccuracies in evaluating costs. By activity based costing reviewing and applying costs to the correct area, Competition Bikes will have a better idea of what is driving the costs of the products being manufactured. A2. Based on an evaluation of cost-volume-profit, do the following: a. Analyze the breakeven point for...
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...market that could help you spice up this case. Maximum points: 100 points Objectives: ➢ Perform breakeven analysis ➢ Practice using Excel spreadsheets ➢ Reinforce writing and critical thinking skills Required: Read the Hallstead Jewelers case published by Harvard Business School. Within this document, after each question, double space and begin your response (single-spaced). Double-space before you begin the next question. Place the answers only in the space provided. Save this document with a filename that shows your last name, first name, and Halstead, course and semester (e.g. Mills_Sherry_Hallstead_503_Sp16). Work your calculations using the excel spreadsheet that I have provided you. Copy and paste special as a picture, your work into this Word document after the appropriate question. Also, save the excel file with a filename that shows your last name, first name, Hallstead, course and semester. Attach your Word and Excel files in the Canvas assignment dropbox. In order to receive full credit, use excel to make the calculations and show calculations including clear labels for each number must be shown on your excel spreadsheet. Required: USE THE INFORMATION FROM EXHIBITS 1 AND 2 IN THE EXCEL FILE TO ANSWER THE FOLLOWING QUESTIONS. Do not use the information found in the case exhibits. Assume that cost of goods sold and commissions are variable costs. All remaining costs are fixed costs. What is...
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...It is more practical to find the breakeven point in sales dollars for companies having thousands of individual items. Finding the breakeven point for each item would be laborious and meaningless. 7-3 The contribution margin ratio is: price - variable costs price The contribution margin ratio (CMR) represents the net contribution per sales dollar. The CMR tells us the change in profit associated with a given change in sales dollars. It is a useful measure of the relative contribution to profit of different products, divisions, or sales units. The use of this ratio can give a retail store a good approximation of the sales dollars necessary for the store to break even. A higher CMR is associated with higher risk. A higher CMR can have a more favorable impact on profit. However, if sales fall below breakeven, then a high CMR will yield a relatively more negative impact on profits. 7-4 The basic assumption of the CVP model is that the behavior of revenues and total costs is assumed to be linear over the relevant range of activity. Managers must be careful to remember that the calculations done within the context of a given CVP model cannot be interpreted safely outside of the relevant range of output for that particular model. Other assumptions include: fixed costs are measured by all fixed costs if a long-term perspective (i.e., breakeven over a longer period of time) is to be taken, while only incremental fixed costs for the project or activity...
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...SOLUTIONS TO EXERCISES EXERCISE 22-1 (a) The determination as to whether a cost is variable, fixed, or mixed can be made by comparing the cost in total and on a per-unit basis at two different levels of production. | |Variable Costs | |Vary in total but remain constant on a per-unit basis. | | |Fixed Costs | |Remain constant in total but vary on a per-unit basis. | | |Mixed Costs | |Contain both a fixed element and a variable element. Vary both in total and on a per-unit basis. | (b) Using these criteria as a guideline, the classification is as follows: | |Direct materials | |Variable | |Rent | |Fixed | | |Direct labor | |Variable | |Maintenance | |Mixed | | |Utilities | |Mixed | |Supervisory salaries | |Fixed | EXERCISE 22-2 (a) Maintenance Costs: [pic] = [pic] = $5 variable cost per machine hour | | | |800 | |300 | | | ...
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...RJET TASK 4 A1. COSTING METHOD Activity based costing or ABC accounting as it is called distributes manufacturing overhead costs to products in a smarter way than in the traditional way. This way of simply assigning costs on the basis of machine hours. Activity based costing assigns costs first to the activities that make up the real overhead. Then it assigns a cost to the activities that affect only the products produce. ABC vs Traditional Costing This is one main difference between ABC (Activity Based Costing) and TCA (Traditional Cost Accounting) it is Activity Based Costing is complex and takes more time and effort to figure out and Traditional Cost Accounting is simple and to the point. Activity Based Costing began some time in 1981 so it is still a relatively new costing bases. But Traditional Cost Accounting has been around since the late 1800’s. In TCA you figure the cost of the items used to produce the product and the resources that were alos used. But in the ABC method you only figure the cost for the actual materials that were used to finish the product. Activity Based Costing is a more accurate way of costing produts and is preferred over the Traditional Cost Accounting method. The ABC method is normally implemented when overheads are high and there is a large amount of misc. products. If the product costing method in incorrect then you may be under cutting your competitors, but you might also be losing your profits at the same time. So it is better for the...
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...find the breakeven point in sales dollars for companies having thousands of individual items. Finding the breakeven point for each item would be laborious and meaningless. 7-3 The contribution margin ratio is: price - variable costs price The contribution margin ratio (CMR) represents the net contribution per sales dollar. The CMR tells us the change in profit associated with a given change in sales dollars. It is a useful measure of the relative contribution to profit of different products, divisions, or sales units. The use of this ratio can give a retail store a good approximation of the sales dollars necessary for the store to break even. A higher CMR is associated with higher risk. A higher CMR can have a more favorable impact on profit. However, if sales fall below breakeven, then a high CMR will yield a relatively more negative impact on profits. 7-4 The basic assumption of the CVP model is that the behavior of revenues and total costs is assumed to be linear over the relevant range of activity. Managers must be careful to remember that the calculations done within the context of a given CVP model cannot be interpreted safely outside of the relevant range of output for that particular model. Other assumptions include: fixed costs are measured by all fixed costs if a long-term perspective (i.e., breakeven over a longer period of time) is to be taken, while only incremental fixed costs for...
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