...of an organization’s end product minus the operating profit to establish the target cost. c. starts with the selling price of an organization’s end product minus actual manufacturing, overhead, and materials costs to determine operating profit. d. starts with the supplier’s price, and works to determine the supplier’s true cost structure. e. starts with the buyer’s lowest reasonable price target, and works to a negotiated price agreed on by the buyer and the supplier. 2. Activity based costing attempts to: a. correct the distortions built into product costing by the way that direct costs are allocated. b. correct the distortions built into product costing by the way that the learning curve is applied to direct labor costs. c. turn indirect costs into direct costs by tracking the cost drivers behind indirect costs. d. turn direct costs into indirect costs by tracking the cost drivers behind direct costs. e. introduce a new way to allocate direct costs that more accurately captures labor and material usage. 3. An externally focused process of analyzing costs in terms of the overall value chain is called: a. strategic cost management. b. supply chain management. c. total cost management. d. profit leverage effect. e. activity based costing. 4. Target pricing may result in companywide cost reductions in: i. design to cost. ii. manufacture to cost. iii. purchase to cost. iv. a and b. v. a, b, and c. 5. Sources of...
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...of an organization’s end product minus the operating profit to establish the target cost. c. starts with the selling price of an organization’s end product minus actual manufacturing, overhead, and materials costs to determine operating profit. d. starts with the supplier’s price, and works to determine the supplier’s true cost structure. e. starts with the buyer’s lowest reasonable price target, and works to a negotiated price agreed on by the buyer and the supplier. 2. Activity based costing attempts to: a. correct the distortions built into product costing by the way that direct costs are allocated. b. correct the distortions built into product costing by the way that the learning curve is applied to direct labor costs. c. turn indirect costs into direct costs by tracking the cost drivers behind indirect costs. d. turn direct costs into indirect costs by tracking the cost drivers behind direct costs. e. introduce a new way to allocate direct costs that more accurately captures labor and material usage. 3. An externally focused process of analyzing costs in terms of the overall value chain is called: a. strategic cost management. b. supply chain management. c. total cost management. d. profit leverage effect. e. activity based costing. 4. Target pricing may result in companywide cost reductions in: i. design to cost. ii. manufacture to cost. iii. purchase to cost. iv. a and b. v. a, b, and c. 5. Sources of...
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...Economic Impact Analyses analyze the economic effects of a particular project in a particular area. This analysis can cover a region as small as a neighborhood and as large as the world. The main variables analyzed include revenue, profits, wages, and jobs. They consider the direct impact the economic impact has on an area as well as indirect impacts. For instance, you can analyze the total number of employees a firm will hire if it builds a new factory. You can also analyze what this increase in employment will do to other non-related industries in the area. These newly employed workers will have more money to spend at a local store which will in turn create more profits and potentially more jobs. It typically analyzes activity before the project and after the compare the changes and the impact of the project. This is typically done by measuring the difference in economic activity assuming the economic event occurs and then assuming it does not occur. This is called the counterfactual case. An economic event can be defined as a new business moving into a region, a new policy or government program, or any other activity that produces some sort of profit. This is useful to determine if a particular project is worth investing in (Southwestern Oklahoma State University, 2012) . The main types of impact analysis include output impact, value added impact, labor income impact, and employment impact. There is also a property value impact. An output impact measure the total increase...
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...are financial statements that will assist in analyzing the financial standings of Home Depot from 2007 to 2009. Taking a more in-depth look at the financials statements below, which includes consolidated statements of earning, balance sheet, and cash flow helps better to understand the internal and external use of each statement. As well as analyzing how a company makes decisions based on the financial information on the statements. Consolidated Statements of Earnings Home Depot's income statement is a mirror of their expenditures versus income that will tell if Home Depot is making a profit or in a financial bind. Within the consolidated statements, are net sales that are a tool to deceiver what the company’s cost of goods are and expenses that are a percentage of the net sales. After analyzing the three principal components cost of goods, expenses, and net sales a company can make financials decisions. These decision includes whether to increase or decrease costs or cost of goods based on the companies income for a said period or at the end of the fiscal year. For example, if Home Depot were to make some cuts due to down sales then analyzing cost of goods could help to make up for low sales. A company may pull merchandise from their warehouse or only order essential items to bring down cost of goods expenditures. Looking at Home Depot consolidated statements of earnings for the years 2007 through 2009 had a decrease of cost of goods and net sales (approximately .098%)...
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...1 Case Study I Solution Template - The following cost items are needed before a schedule of cost of goods manufactured can be prepared: Materials used in production (Remember raw materials used are NOT always the same as raw materials purchased so you must calculate it!): Prime Costs $545,000 Less Direct Labor Cost 220,000 Direct Materials Cost $325,000 Manufacturing Overhead Cost: The problem states direct labor cost and % mfg ovhd is of conversion cost , so you can figure out the % direct labor is of conversion cost and use the formula to calculate conversion cost Direct Labor Cost/ Percentage of Conversion Cost = Conversion Cost 220,000 35% $628,571 rounded to nearest dollar ( this is total conversion cost) 100%-65% = 35% Given: Material Purchases $325,000 Conversion Cost from your calculation above $628,571 Direct Labor $220,000 Less Direct Labor Cost 220,000 Sales $1,350,000 Manufacturing Overhead $408,571 Gross Margin 30% Costs of Good Avilable for Sale $1,020,000 Cost of Goods Manufactured: Prime Costs $545,000 Manufacturer Overhead 65% Cost of Goods Available for Sale $1,020,000 Raw Materials $41,000 Less: finished goods inventory, beginning 35,000 Work in Progress $56,000 Cost of Goods Manufactured $985,000 Finished Goods $35,000 The easiest way to proceed from this point is to place all of the amounts that are known in a partially completed schedule of cost of goods manufactured and a partially completed income...
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... The following cost items are needed before a schedule of cost of goods manufactured can be prepared: Materials used in production (Remember raw materials used are NOT always the same as raw materials purchased so you must calculate it!): Prime Costs $545,000 Less Direct Labor Cost 220,000 Direct Materials Cost $325,000 Manufacturing Overhead Cost: The problem states direct labor cost and % mfg ovhd is of conversion cost , so you can figure out the % direct labor is of conversion cost and use the formula to calculate conversion cost Direct Labor Cost/ Percentage of Conversion Cost = Conversion Cost 220,000 35% $628,571 rounded to nearest dollar ( this is total conversion cost) 100%-65% = 35% Given: Material Purchases $325,000 Conversion Cost from your calculation above $628,571 Direct Labor $220,000 Less Direct Labor Cost 220,000 Sales $1,350,000 Manufacturing Overhead $408,571 Gross Margin 30% Costs of Good Avilable for Sale $1,020,000 Cost of Goods Manufactured: Prime Costs $545,000 Manufacturer Overhead 65% Cost of Goods Available for Sale $1,020,000 Raw Materials $41,000 Less: finished goods inventory, beginning 35,000 Work in Progress $56,000 Cost of Goods Manufactured $985...
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...use the provided information to carry out three major activities: planning, directing and motivating, and controlling Planning involves the identification of alternative business plans. The plans that are most beneficial to the company should be reviewed and implemented if feasible. The implementation process involves budgets. Budgets are prepared under the direction of a controller, a manager in charge of the accounting department. Typically, budgets are prepared annually. We will learn more about budgets in chapter 7. Besides analyzing business alternatives managers must direct and motivate employees. As we know, unhappy, unguided employees can be detrimental to a business. I have worked for companies where one employee would stifle other employees to the point where he had to be fired. Productivity is paramount to profitability. In addition to managing personnel, managerial must keep the company running in an orderly fashion by analyzing daily sales reports, among other reports, to ensure there are no bottlenecks in production, falling sales within certain product groups, etc….Identification of such problems would lead to actions to resolve the issues. Controlling involves making sure the plan is being followed. Feedback is key to effective control. As the book points out, performance reports are part of feedback. How managers use these reports could determine how a successful a company can be. Imagine a manger looking at a performance report and...
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...Difficulty: 1 Objective: 1 2. A product differentiation strategy includes offering unique and superior products for increased prices. Answer: True Difficulty: 1 Objective: 1 3. The cost leadership strategy is for products and services that are similar to competitor’s products and services. Answer: True Difficulty: 1 Objective: 1 4. The product differentiation strategy is probably best for a company if the engineering staff is more skilled at making process improvements than at creatively designing new products. Answer: False Difficulty: 2 Objective: 1 The cost leadership strategy is probably best for a company if the engineering staff is more skilled at making process improvements than at creatively designing new products. 5. In general, profit potential increases with greater competition, stronger potential entrants, products that are similar, and tougher customers and suppliers. Answer: False Difficulty: 1 Objective: 1 In general, profit potential decreases with greater competition, stronger potential entrants, products that are similar, and tougher customers and suppliers. 6. Reengineering is the fundamental rethinking and redesign of business processes to achieve improvements in critical measures of performance such as cost, quality, service, speed, and customer satisfaction. Answer: True Difficulty: 1 Objective: 2 7. Reengineering benefits are most significant when they focus on one business function rather...
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...CHAPTER 19 ALTERNATE PROBLEMS Problem 19.1A Using Cost-Volume Profit Formulas Jumble writes and manufactures spelling games that it sells to retail stores. The following is per-unit information relating to the manufacture and sale of this product: Unit sale price $ 30 Variable cost per unit 6 Fixed costs per year 280,000 Instructions Determine the following, showing as part of your answer the formula that you used in your computation. For example, the formula used to determine the contribution margin ratio (part a) is: |Contribution Margin Ratio |= |Unit Sales Price – Variable Costs per Unit | | | |Unit Sales Price | a. Contribution margin ratio. b. Sales volume (in dollars) required to break even. c. Sales volume (in dollars) required to earn an annual operating income of $50,000. d. The margin of safety sales volume if annual sales total 50,000 units. e. Operating income if annual sales total 50,000 units. Problem 19.2A Using Cost-Volume-Profit Formulas Spear Products typically earns a contribution margin ration on 30% and has current fixed costs of $90,000. Spear’s general manager is considering spending an additional $25,000 to do one of the following: 1. Start a new ad campaign that is expected to increase sales revenue by 8%. ...
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...after Mr. Port graduated with his M.B.A. That report is following: PERFORMANCE DRINKS - MONTHLY PROFIT REPORT | | Basic | Hydration | Intensity | Post Workout | Total | REVENUE | | | | | | Sales | $125,000 | $120,000 | $74,250 | $93,000 | $412,250 | COSTS | | | | | | Direct Materials | $40,000 | $50,000 | $31,000 | $33,000 | $154,000 | Direct Labor | $25,000 | $20,000 | $10,000 | $18,000 | $73,000 | Fringe Benefits on Direct Labor | $11,250.00 | $9,000.00 | $4,500.00 | $8,100.00 | $32,850.00 | Manufacturing Overhead | $43,750.00 | $35,000.00 | $17,500.00 | $31,500.00 | $127,750.00 | TOTAL COST | $120,000.00 | $114,000.00 | $63,000.00 | $90,600.00 | $387,600.00 | GROSS MARGIN | $5,000.00 | $6,000.00 | $11,250.00 | $2,400.00 | $24,650.00 | GROSS MARGIN RATIO | 4.00% | 5.00% | 15.15% | 2.58% | 5.98% | | | | | | | Annual Volume: | 100,000 | 80,000 | 45,000 | 60,000 | 285,000 | Unit Price: | $1.25 | $1.50 | $1.65 | $1.55 | $1.45 | Unit Cost: | $1.200 | $1.425 | $1.400 | $1.510 | $1.360 | Since your primary area of focus is on the indirect costs you compile the following report which further details your overhead charges: PERFORMANCE DRINKS - MONTHLY MFG OHD COST REPORT | | Monthly Charge | Indirect Labor | $55,000.00 | Fringe Benefits on Indirect Labor | $24,750.00 | Utilities | $5,000.00 | Processing Equipment - Depreciation | $10,000.00 | Preventative Maintenance | $10,000.00 |...
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...use the provided information to carry out three major activities: planning, directing and motivating, and controlling Planning involves the identification of alternative business plans. The plans that are most beneficial to the company should be reviewed and implemented if feasible. The implementation process involves budgets. Budgets are prepared under the direction of a controller, a manager in charge of the accounting department. Typically, budgets are prepared annually. We will learn more about budgets in chapter 7. Besides analyzing business alternatives managers must direct and motivate employees. As we know, unhappy, unguided employees can be detrimental to a business. I have worked for companies where one employee would stifle other employees to the point where he had to be fired. Productivity is paramount to profitability. In addition to managing personnel, managerial must keep the company running in an orderly fashion by analyzing daily sales reports, among other reports, to ensure there are no bottlenecks in production, falling sales within certain product groups, etc….Identification of such problems would lead to actions to resolve the issues. Controlling involves making sure the plan is being followed. Feedback is key to effective control. As the book points out, performance reports are part of feedback. How managers use these reports could determine how a successful a company can be. Imagine a manger looking at a performance report and...
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...Analysis of Direct Cost November 27, 2011 Direct labor cost is the prices charged for the production of specific goods or services. Direct costs refer to materials, labor and expenses related to the production of a product. Direct labor is labor directly associated with the work being produced (Murphy, p. 98). Other direct labor is labor readily identifiable with a particular objective such as a contract and labor important enough to warrant identifying and measuring so we can keep up with its cost (Murphy, p.99). Companies use systematic procedures, work breakdown structure and phase diagrams to estimate direct labor cost. One of the most widely used methods to estimate labor cost is the work breakdown structure or WBS (Murphy, p.101). The phase diagram is very similar to the WBS except that the detail of the work is spread out over a longer time period. To effectively analyze direct labor cost, you need to establish a model or standard rate. The standard rate is an estimate of what you expect the direct cost of labor will be under normal conditions. To accurately measure direct labor cost, you must include all expenditures, not just wages. Two primary components of a model is the projected cost of one hour of direct labor and the number of labor hours required to produce one unit. Other direct costs are often the type of cost that the firm would normally charge as an indirect cost, but the proposed contract requires a large, unusual, or one-time expenditure for...
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...(SCF) as part of their F/S. •Historical CF are often used as indicator of amount, timing, and uncertainty of future CF. •The objective of the SCF is to disclose the historical cash flows of the enterprise during the reporting period for both feedback and predictive purposes. Classification and Organization The SCF is classified on the basis of the type of cash flow: •Operating activities are the principal revenue-producing activities of the enterprise and the related expenditures. * Cash inflow from operations is measured as cash received from customers or clients. * Cash outflows are those disbursements for operating activities, such as cash paid for inventories, wages and salaries, income taxes, and rent and other overhead costs. * Operating activities relate to net earnings (rev. + exp.), not comprehensive income. * If the company has recognized specific amounts that are part of other comprehensive income, these transactions or events are not included in operating activities. * Therefore, net earnings is the reference point for operating activities on the SCF. •Investing activities are those activities that relate to long-term assets and investments. * The acquisition and disposal of property, plant, and equipment; intangible assets; other assets; and investments are all included in this section. * Changes in (current) operating assets, such as inventory and accounts receivable, are excluded from this section and included in operating activities...
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...| CASE 2 | Fortescue Metals Group: The new force in iron ore | ABC 9/12/2011 | Contents Introduction 1 Analyzing the external environment 1 Demographic 1 Economic 1 Socio-culture 2 Political-legal 2 Global 2 Technological 2 External environment conclusion 2 Industry analysis 3 Profit pool 3 Porter five forces 3 Threat of new entry 3 Bargaining power of suppliers 4 Bargaining power of buyers 4 Threat of substitute products 4 Rivalry among competing firms 4 Industry analysis conclusion 4 Competitor analysis 4 Analyzing the internal environment 5 Tangible resources 5 Intangible resources 6 Value chain analyzing 6 Capabilities 6 Core competencies 7 Weaknesses 7 Current strategy 7 Future strategy 8 Concluding remarks 8 References 9 Introduction Fortescue Metals Group: The new force in iron ore is a new company in the Australia with new vision. It was founded in 2003 with the aim of lowest cost producer in order to complete with large players of industry. Its main customer is China. Its lowest cost structure is main reason behind getting huge business from china. It had to faced many challenges in the industry but its strong policies supported company to make its distinct position in the industry Analyzing the external environment Every business/ company has external environment with some positive and negative points. Below is the analysis of Fortescue external environment. Demographic According to information...
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...patterned glasses and vases. He is considering expanding his product line, or taking on custom work (one of kind orders) as customers have asked him to do this in the past, but he has not done so as yet. Because of the product cost mess he has no order in management. He realizes his prices are too low, but he cannot figure out the product price structure and a course module pertaining to cost behaviors, product costing, and relevant costs. As a result, it is hard for him to give the exact price for four different kinds of glasses. Also, he only has a few thousand dollars. If he does not sell the products on time he will run out of money. The main solution is to know about production schedule, the financial budget, direct labor cost and his timeframe .In analyzing this case, firstly, we need to thoroughly understand the production procedure, an annual statistics income statement. Secondly, we need to compute products variable costs and fixed costs. But in this case, the fixed cost is complicated. One type that occurs is only during the periods when Giberson is blowing glass not while during his vacation, such as total gas used. Another that exists is irrespective of production, such as truck loan interest, crucial facilities’ depreciation. Cost Analysis I started with 200 lbs of raw material, but ended up with product that consisted of 39.2 lbs. the rest of the 200 lbs was waste. First I need to multiply the final weight of each piece by the number made. Patterned...
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