profit and at the same time it enables firms to determine the break-even point and the margin of safety of the firm. This information is important to ensure the survival of the firm in the short-run and also in the long-run. * BEP represents the minimum units that the company have to sell before it incurs losses. BEP is a no gain no loss situation where the total revenue is equal to total costs. * Margin of safety shows the maximum units that can be reduced before the company will incur
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200 3‚480 Contribution Margin $ 236 $ 3‚000 $ 180 $ 3‚132 *in thousands of dollars *$400 x 95%= $380 *$380 x 17‚500 u= $6‚612 Air Comfort Division should institute the 5% price reduction on its air-conditioner units since the effect of this reduction would increase an additional of $132‚000 ($3‚132‚000-$3‚000‚000) to its Income before tax. The additional profit is caused by a sale increase of $432‚000 ($180 x 2‚400) in the contribution margin and a loss in contribution margin on original
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Horngren‚ C.T.‚ Datar‚ S.M. and Foster‚ G. (2003) Cost Accounting - A Managerial Emphasis‚ Pearson Education‚ Inc.‚ New Jersey‚ Eleventh Edition CHAPTER 11 DECISION MAKING AND RELEVANT INFORMATION 11-1 The five steps in the decision process outlined in Exhibit 11-1 of the text are: 1. 2. 3. 4. 5. Obtain information Make predictions about future costs Choose an alternative Implement the decision Evaluate performance to provide feedback 11-2 Relevant costs are expected future costs that differ
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Five Star Tools Five Star Tools is a small family-owned firm that manufactures diamond-coated cutting tools(chisels and saws) used by jewelers. Production involves three major processes. First‚ steel “blanks” (tools without the diamond coating) are cut to size. Second‚ the blanks are sent to a chemical bath that prepares the tools for the coating process. In the third major process‚ the blanks are coated with diamond chips in a proprietary process that simultaneously coats and sharpens the
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profitability even further. The answer lies in the other half of operations‚ known as costs. Variable costs are expenses that are directly associated with the sale of a good. When variable costs are subtracted from sales what is left is known as the contribution margin which gives an idea of how profitable your sales are. CRU’s variable
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units of laser printers per day‚ the older plant can produce 200 units per day. Variable cost per unit in Ogden is $110‚00; in Sandy variable cost is $15 higher. Selling price for the printer is $320‚00. Based on the data mentioned above the contribution margin per unit of normal production is $210‚00 in Ogden and $195‚00 in Sandy. Fixed costs per unit based on normal capacity are $70‚00 and $39‚00; total fixed cost is $4 200 000 for the Ogden plant and $1 872 000 for Sandy. In the circumstance when
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Foxy Originals 1. Discuss the pros and cons to launching the Foxy brand in the United States. To determine the pros and cons‚ we conducted a SWOT analysis: S(trengths) – Foxy Originals has saturated the Canadian market‚ which presents an opportunity for growth. The two owners have extensive experience in designing jewelry‚ having done so since they were in high school. They’re good at what they do and have had time to perfect their trade. They also have a firm grasp of who their target
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loss. But is that a problem for the parent company? We do not think so‚ if the Prestige Data Services does not exist anymore‚ the Prestige Telephone still have to pay for the cost such as: lease‚ maintenance‚ computer services...‚ but they get no contribution. In order to check if the data provided are relevant to make the decision at hand‚ the data has to satisfy the following criteria for it to be a relevant data. • It has to be an accepted future revenue or cost‚ • It must have an element of
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Executive Summary Five Star Tools is a family owned manufacturing company that manufactures chisels and saws used by jewelers. They produce the tools utilizing a 3 step process. In the past two years the company has experienced significant growth and at times has not been able to meet order deadlines. Management has identified that they have a bottle neck in the coating and sharpening process. Overview The president of Five Star Tools‚ Maxfield Turner decided to meet with the vice president
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revenue hour is $28.70/hr Question 3 - Price per unit is $400/hr internal and $800/hr external - Intracompany contribution margin: $371.30/hr - Commercial contribution margin: $771.30/hr Assume STC will fully utilize their allowable hours. The next allowable hour will be a commercial hour; therefore we consider the contribution margin to be the commercial contribution margin of $771.30/hr. Question 4 Break-even occurs when revenue equals costs so we used the following equation:
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