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Salewa

In: Business and Management

Submitted By jawad1234
Words 2670
Pages 11
Assignment 1 - Part 1: Volume-Based Costing Systems
This part will show an analyses of product costs and profitability for the Salewa Case. We start with a description of assumptions and methods that are used for the calculations.

To calculate the amount of costs each product should be carrying based on traditional absorption costing we first started with calculating the fifth years sales for each product. In order to obtain these we summed up all quarterly sales of the products. Total revenues per product are now easily calculated by multiplying the amount of products for each product with the selling price. We now have total revenues per product which we can use later for performing the profitability analysis of the firm.

Under a traditional absorption cost system the costs are allocated to the products by determining direct costs and an allocation base for determining how to allocate overhead costs for each product. In the case of Salewa there are two direct costs, direct labor and direct materials. The allocation base for allocating the overhead will be machine hours and direct labor hours.

Cost per product = Cost of direct Materials + Cost of direct Labor + Allocated Overhead

Direct materials
To calculate the cost of direct materials we multiplied the total production per product with all the costs of direct materials per product and summed them up. Eventually we had for each of the four products the total amount of direct material cost.

Direct Labor
To calculate the total direct labor costs we first started with calculating the cost for high and low skilled employees per hour. We did this by dividing the quarterly salary per employee with the amount of labor hours per quarter per employee. For calculating total direct hours per product we used fractions because there is a difference in speed between high- and low skilled employees. Because

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