seven-years old. 2. Mark Thomas‚ assistant director of the Abbington Youth Center‚ instructs the program directors with his breakeven analysis. He calculated the following results by using average method: * Each student contributed $4‚348 to fixed costs * 115 students are the breakeven point 3. The current Abbington’s programs enrollment is exactly at breakeven‚ so Mr. Thomas encourages the program directors to expand the size of their programs to increase margin. However‚ they come up
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differences‚ which can be reconciled though. Absorption Costing absorbs all manufacturing/production costs into inventory valuation. These costs include direct material‚ direct labour‚ direct expenses‚variable production overheads‚ as well as fixed production overheads. On the contrary‚ Marginal Costing absorbs only variable manufacturing/production costs into inventory. The method chosen to cost inventory or prepare the profit statement has the potential to: affect the pattern of calculated profits;
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understand the cost associated with doing business as well. We can calculate the expected revenue generated by each pricing strategy‚ but without cost information‚ it is not possible to determine the preferred price. The cost concepts we introduce are: - Variable cost - Fixed cost - Total cost We combine the cost information with price information to determine unit contribution and total contribution. This Figure is a good enough approximation of actual cost behaviour Total cost The total
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revenue – Variable cost – Fixed cost 6.3 The unit contribution margin is the excess of the unit price over the unit variable costs. The total contribution margin is the excess of total revenue over total variable costs. 6.4 Assumptions: 1. Revenues change proportionately with volume. 2. Variable costs change proportionately with volume. 3. Fixed costs do not change at all with volume. (Other assumptions may include constant product mix and/or all CVP costs are expensed.) 6.5
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CHAPTER 3 COSTS CONCEPTS and CLASSIFICATION [Problem 1] 1. Direct labor P10 Variable factory overhead 15 Fixed factory overhead 6 Unit conversion cost P31 2. Direct materials P32 Direct labor 10 Unit prime cost P42 3. Unit prime cost P42 Variable factory overhead 15 Unit variable cost P57 4. Total production cost (12‚000 units x P63) P756‚000 [Problem 2] 1. Indirect materials and factory supplies P 68‚000 Supervising salaries
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Costing Absorption cost systems are widely used to prepare financial accounts. These systems are designed to absorb all production costs (variable or fixed) into costs of units produced. Absorption costs techniques allow manufacturing costs to be traced and allocated into product costs. There are different types of absorption costing systems: job order costing‚ process costing‚ and ABC costing. In job order costing‚ costs are assigned to products in batches or lots‚ and the costs of each specific batch
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variable cost per passenger | $70 | Fixed operating cost per month | $3‚150‚000 | a. What is the break-even point in passengers and revenues per month? Break-even point in passengers = | Total Fixed Costs + Target Profit | | | | Contribution Margin per passenger | | | = | 3‚150‚000 + 0 | | | | 160-70 | | | = | 3‚150‚000 | | | | 90 | | | = | 35‚000 is the break-even point in passengers | Break-even point in revenues = | Total Fixed Costs
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loss of $876‚000. This was $2.8 million less than the expected contribution. Comparatively‚ EROW did well in all aspects with sales worth $89 million and a net profit worth $22.6 million. After further exam‚ management concluded that the large fixed cost absorbed the sale figure‚ due to which the two divisions with same products have such a difference. First it is important to understand the standard costing system implemented in Rubber group. Standard costing assigns quantity and price standards
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relationships among costs‚ volume and the company’s profit; otherwise known as CVP analysis. CVP analysis stands for Cost-volume-profit analysis which a form of cost accounting in managerial economics. The five essential concepts underlying CVP analysis include: 1. The behavior of both costs and 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
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analysis as a decision-making tool. The definition of the Break-even analysis: The break-even analysis is an analysis of a product or company’s sales required to neither lose money nor make a profit‚ but simply to cover costs. Explain in mathematical term: total revenues – total costs = 0. The methods: By using a break-even formula or by drawing a break-even chart. Why is it so important using a break-even analysis? Because it gives vital information about a business or a company’s financial status
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