When actual results are better than the expected results, we have a favourable variance (F). If, on the other hand, actual results are worse than expected results, we have an adverse (A). I will use this example throughout this Exercise: Standard cost of Product A $ Materials (5kgs x $10 per kg) 50 Labour (4hrs x $5 per hr) 20 Variable o/hds (4 hrs x $2 per hr) 8 Fixed o/hds (4 hrs x $6 per hr) 24 102 Budgeted results Production: 1,200 units Sales: 1,000 units Selling price:
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to bring the profit per meter up to that of other items on the line. Although the company was in a strong position financially, it would require considerable capital in the next few years to finance a recently approved long-term modernization and expansion program.1 Facing stiff competition the senior management needed to reconsider the pricing plan for Item 345. So in early 2004 they held a meeting to decide in which direction to go. A reasonable forecast of industry volume for 2004 was
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making across the organization, managers must have an understanding of cost effectiveness, selling, pricing, and budgeting. The organization must be able to accurately budget for variable cost as well as fixed cost while maintaining an increase in profit and revenue. In this paper, I will discuss the different view-points of decision making across the organization. I believe that when looking at the behavior of analysis cost it allows me to think of it in the prospect of how my uncle explains the
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Introduction: MARGINAL COST: Marginal Cost is the additional cost of producing an additional unit of product. In simple, marginal cost is the extra cost of an extra unit of production. It is the total of all variable costs. It composed of all direct costs and variable costs. The CIMA, London, defines marginal cost “as the amount at any given volume of output by which aggregate costs are changed, if volume of output is increased or decreased by one unit”. In other words, it is the cost of one unit of
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evaluation of the managers who run them? French Division Units ('000) Profit Plan (Master Budget) Profit before Interest and Taxes = 1027 Flexible Budget Profit before Interest and Taxes = 2,002 But Actual Profit earned = 1242 which is 760 less than profit anticipated in flexible budget. Increase in the profits above the actual budget can be attributed to 20% increase in sales in 2009. Although Jean’s profits were above the actual budget, French Division’s earnings were much lower than
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team, but the team worked well. The main problem lies in the transfer of costs. Polysar uses a cost-based transfer price, in particular a full cost transfer price including both variable and fixed costs; the system is based on budgeted standard costs where no mark-up is included. Also, the transfers are not recorded as a revenue, so don’t create profit and if EROW cut back on orders, NASA’s profit is damaged through the volume variance. For these reasons, and since the businesses is run on return
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Variance = Some Quantity * Some Price – Another quantity*another price. For any Case, follow the following steps: 1) identify causes for the variance 2) Hold some Department to be responsible for it. 3) Suggest remedial, if possible 2 Golden Rules: Cost Control is always done on Actual Output Inefficiency of one department should never be attributed/overlapped to another department. VARIANCE OUTPUT INPUT SALES Variance MATERIAL Variance LABOUR Variance OVERHEAD Variance USE AT
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− Variable cost − Fixed cost = Profit (Sales price x N) − (Variable cost per unit x N) = Fixed cost + Profit (Contribution margin per unit x N) = Fixed cost + Profit N = (Fixed cost + Profit) ÷ Contribution margin per unit N = ($750,000 + $200,000) ÷ ($57 − $32) = 30,000 units Break-even dollars = $57 x 30,000 units = $1,710,000 b. N = ($750,000 + 21,000) ÷ ($57 − $32) = 38,000 units Sales in $ = $57 x 38,000 = $2,166,000 Exercise 3-2B N = Number of units to break-even N = Fixed cost ÷ Contribution
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reputation is based, must not be compromised. The Jot brand name is known for quality toys but it is important that its products appeal to costconscious retailers and price sensitive customers. Jot can use the cost-leadership strategy, using Porter’s generic strategy framework, to select the minimum cost in its choice of manufacturers for products YY and ZZ. 2.0 Terms of reference I am the Management Accountant appointed to write a report to Jon Grun, Managing Director of Jot, a toy company, which prioritises
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Contents Introduction 2 LO1. Understand the importance of cost, volume and profit for management decision making in the travel and tourism 2 1.1 Importance of Cost and Volume 2 1.2 Pricing Methods 4 1.3 Factors Affecting Profit 5 LO2. Understand the use of management accounting information as a decision making tool in travel and tourism businesses 7 2.1 Types of Management Accounting Information 7 2.2 Decision Making Tool 8 LO3. Be able to interpret financial accounts to assist
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