Premium Essay

Rjet Task 4

In: Business and Management

Submitted By jgtillotson
Words 1246
Pages 5
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 company to make sure your product costing is as accurate as possible.
Traditional Cost Accounting uses one total as the main overhead cost. It is hard to figure an true cost for a product when they are figured based on labor and machine hours.
Activity Based Costing has been used more in resent decades because overhead cost have increased, the amount of different products being produced and...

Similar Documents

Premium Essay

Rjet Task 1

...[pic]RJET Task 1 | | | | | | | |Help on this Page | |Directions | | | |SUBDOMAINS: 326.1 - MANAGING INTERNAL COST & CONTROLLING FINANCES | |326.2 - MANAGING CAPITAL AND FINANCIAL ASSETS | |326.4 - MANAGING ENTERPRISE RISK & CONTINUITY | |329.4 - MANAGING OPERATIONS | | | |Competencies: 326.1.1: Financial Analysis - The graduate analyzes and benchmarks financial statements, evaluates company | |performance,......

Words: 549 - Pages: 3

Premium Essay

Jet2 Task 4

...Jorge Felix MBA, Management and Strategy Student ID: 000309831 Mentor: Rose Sklar C 915-497-5423 El Paso, Texas MST Financial Analysis RJET Task 4 To: Mr. Vice President From: Jorge Felix, CBI Analyst RE: Summary report As directed by you, please read below my analysis and recommendations for Competition Bikes Inc. Since the company has retooled and is making both the Carbon Lite and the Titanium frame bikes. I will be analyzing the results of your directed activity-based costing analysis was undertaken in one of the company plants. After the study, a breakeven analysis was completed along with target profit projections. It will be in Company’s best interest to change from a traditional costing system to an activity-based costing system. In this summary report you will find evidence as to why this transformation it’s relevant and important since it will emphasize the differences between traditional costing and activity based costing systems. A1. Costing Method This method is defined as the allocation of manufacturing overhead (indirect manufacturing costs) to products on the basis of a volume metric such as direct labor hours or production machine hours. As manufacturing becomes more sophisticated the manufacturing overhead costs usually increase while the direct labor hours or production machine hours decrease. Hence, the direct labor or machine hours are unlikely to be the root cause of the manufacturing overhead (Accounting Coach, 2012) This costing method is called......

Words: 1404 - Pages: 6

Premium Essay

Rjet2 Task 4

...Running head: Competition Bikes, Financial Analysis RJET Task 4 Sacha B.R. Almanza Student ID: 000280685 Program & Start Date: M.B.A. Health Care Management; 10.02.2012 Western Governor’s University Running head: Competition Bikes, Financial Analysis A1. Costing Method The purpose of the following Executive Summary is to illustrate Competition Bikes Inc.’s need to alter our current costing method by utilizing the activity based costing (ABC) method. Traditional based costing (TBC) is a method a company may use to find the cost of a product in relation to the revenue it creates. It is used to designate manufacturing overhead to units made (Chron, 2013). Activity-based costing identifies activities that a company executes, then designates indirect costs to each product. The ABC determines the cost for each activity and allocates the cost to their respective activities. The cost assigned per activity is also assigned to respective products required for each activity. With traditional costing methods manufacturing costs are only assigned to goods that have been sold rather than accounting for nonmanufacturing costs. There are steps to activity-based costing:   Identifying the cost of each activity and estimated the total cost and indirect cost Estimate the cost driver for each activity and the total quantity for each driver’s allocation base   Calculate the cost appropriation per each activity Appropriate the cost to cost object Though the activity based costing......

Words: 1737 - Pages: 7

Premium Essay

Jet2 Notes

...Horizontal Analysis Horizontal analysis is one of the two main ways to analysis the financial statements of a business. This analysis provides a year to year look at the financial performance of the business being evaluated. The spreadsheet that is attached provides a horizontal analysis of years 6, 7,and 8 for the balance sheet and income statement for Competitive Bikes and Two Wheel Racing.The horizontal analysis can take into account either the dollar amount of the changes over theyears or the percentage of change for the years. This analysis will consider both items, and willalso be comparing years 6 and 7 and 7 and 8. Year 7 The analysis of years 6 and 7 shows a positive result for Competitive Bikes. RevenueThere was a positive increase in revenue for years 6 and 7. Net sales increased by $1,495,000 between years 6 and 7. This was a 33.3% increase for Competition Bikes. The cost of goodssold increased $1,048,000. This was a 31.8% increase. The fact that net sales increased by33.3%, and cost of goods sold increased by only 31.8% was a significant factor in these twoyears. This was a positive result, because net sales increased more than what the cost of goodssold increased. Competition Bikes found a way to sell more bikes at a lower cost for thecompany. This is why the company had an increase of 37.5% in gross profit.Selling ExpensesTotal selling expenses increased by 33% between years 6 and 7. This was expected, becausemost of the selling expenses are considered......

Words: 1844 - Pages: 8

Premium Essay

Jet2 Task 4

...RJET 2 Task 4 Competition Bikes Inc (CB) is now making both CarbonLite and Titanium framed bikes and is therefore in need of re-tooling some of the current practices being used. The company currently uses a traditional based costing (TBC), however an activity based costing (ABC) may be more beneficial. Also, the company’s breakeven point with regards to cost volume profit for each bike type is in question, especially since there is the potential for a $50,000 increase to production facility and a 10% materials cost increase. These areas are under evaluation to help the company navigate the new dual product line production. A1: Costing Method A Traditional Based Costing method looks at the cost to produce a product versus the profits it generates and predicts based on one lump sum. An Activity Based Costing method looks at the whole process to make a product, the activity involved to make the product, and is a more accurate breakdown of the true costs to make a product (Marx, C., 2009). Since most companies make products with both manpower and technology, using the TBC system causes an inaccurate forecast of determining the costs to make a product. TBC looks at what is spent to make a product but not why it was spent. The activity based costing (ABC) is more accurate for determining the actual costs that are spent to make a product because it does not assume that a product generates costs. ABC looks at the costs for each activity and assigns financials based on those......

Words: 2046 - Pages: 9

Premium Essay

Jet2 Task 3

...RJET 2 Task 3 When a company is looking to expand and grow, there are many aspects of finance that must be considered. The company needs to ensure that there is a demand for the products they offer, that they are financially stable and able to expand without putting themselves into bankruptcy, and if acquiring another company that an acquisition is in both companies favors. Looking at capital structure, capital budget, and working capital are a great place for Competition Bikes, Inc. (CB) to start to evaluate the possibility and profitability of expanding, merging or acquiring Canadian Biking, Inc (CB2). A1: Capital Structure Capital structure is essentially “how a company can finance its operations and growth through the use of a mixture of debt and equity (Investopedia US, 2013).” A company’s debt is its long-term loans and bonds, while its equity is considered to be common and/or preferred stocks. A company looking to expand must ensure that it has the right capital structure to maximize return on investment, increase cash flow, and pay off debts. For CB, there are five options of capital structure for them to analyze to ensure that they have the highest earnings per share (EPS) to keep shareholders happy, and a strong net income to support the business. The reason that EPS will be used to gauge which capital structure is because it shows the company how their financial decisions will impact their shareholders and stockholders. EPS is a strong indicator of how......

Words: 3370 - Pages: 14

Premium Essay

Rjet Task 1

...RJET Task 1 A. Prepare a summary report in which you do the following: 1. Evaluate the company’s operational strengths and weaknesses based on the following: a. Horizontal analysis results Horizontal analysis is to determine dollar and percentage changes by comparing financial statements. (Investopedia.com, 2011) Between years 6 and 7, Competition Bike Inc.’s net sales increased 33.3% at $1,495,000. Between years 7 and 8, net sales of the product decreased 15.0% with a loss of $897,000. Gross profits increased 37.5% at $447,000 between years 6 and 7, but decreased 16.3% with a loss of $266,600 between years 7 and 8. This clearly demonstrated the weakness of Competition Bikes that it has not met its goal of sales. The total general and administrative expenses increased 20.4% with $156,440 in years 6 and 7. It also increased 1.2% with $11,004 in years 7 and 8. Regarding the utilities cost, there is 11.1% increase in years 7 and 8 comparing the 3.8% increase in years 6 and 7. It also has a continuous growth at other general and admin expenses at 31.1% and 7.6%. This demonstrates the weakness in expenses control. The company cut advertising expense to response to the declining sales in year 7 and 8. It is a weakness that company is unable to respond properly to the market changes. In addition, there is 16.3% decrease of research and development in years 7 and 8 comparing the 37.5% increase in years 6 and 7. Lack of research and development fund is...

Words: 4615 - Pages: 19

Premium Essay

Jet2 Task 1

...JET2 Task 1 Horizontal Analysis Results Horizontal Analysis is defined as “a procedure in fundamental analysis in which an analyst compares ratios or line items in a company’s financial statements over a certain period of time. The analyst will use his or her discretion when choosing a particular timeline; however, the decision is often based on the investing time horizon under consideration.” (investopedia.com). This data is calculated in both dollars and percentages using data from the balance sheet and income statement. It is an extremely useful tool to evaluate trend situations. The Horizontal Analysis is used to determine Competition Bikes actual financial operating performance from years 6 through 8, with year 6 as the base year. When I looked at the analysis between years 6 and 7, I looked at the financial changes to see what the actual performance was by percentage. The net sales for years 6 and 7 showed a change of $1,495,000 which is a positive increase of 33%. This shows that sales have increased and leads the company to believe that the operating performance was also good and tha customers/dealers really like the product. There was a change of $1,048,000, an increase of 31%, for cost of goods sold. This shows that there is financial strength for the company and also shows that customers/dealers like the products. When looking at cost of goods sold, they should remain lower that the sales increase so that the company can control the cost...

Words: 5924 - Pages: 24

Premium Essay

Rjet Task 5

...RJET Task 5 A. Create a report for the chief financial officer in which you do the following: 1. Summarize the key points of the company’s financial picture that could impact the bank officer’s position. In order to analyze the key points of the company’s financial picture, we will need to focus on the following three areas: profitability, liquidity, and solvency. The banker will examine these three areas very closely when considering the loan for the European expansion. Profitability is another term for how much money the company actually makes. Sales and expenses drive profitability. During year 13, sales suffered a decline of 6.44%, but in year 14 have increased by 1.28% over the previous year. This will be a salient point for the banker to consider because it shows that sales are rebounding a bit over the decline in year 12. Another decline was shown in gross profit and selling expenses in year 13 of 6.44% and then increased in year 14 by 1.28%. This is directly related to the sales figures. This demonstrates to the banker that the company managed to maintain its cost of goods sold and its selling expenses during those years. One area that does not show as favorably is the area of general and administrative expenses. These increased by 7.24% in year 13 and by 6.5% in year 14. From these figures, the banker will be able to see that the company did not manage those expenses well during that period of time. These factors all played a role in the decline of 67.66%......

Words: 5525 - Pages: 23