A cost analysis can be conducted in order by companies in order to estimate their cost when making decisions (Douglas, 2012). Managers can various methods to analyze costs for decision making purposes these are total variable cost, average variable cost, marginal costs (Douglas, 2012). In addition the company can use profit maximization and marginal revenue to help make decisions (Douglas, 2012). This paper will analyze two different scenarios and use various methods to help them make the decisions at hand. The first scenario will analyze a pizza company. William, owner, is trying to increase outputs while minimizing their costs. It has been determined that four ovens cost the company $1,000. In addition, he has supplied the following …show more content…
This makes the most efficient number of employees to be at six because this is the highest return between employee numbers zero and eight. If William was to pay each employee $500 per week, he could determine his variable cost by taking their pay per week by the number of employees. Once this is computed he can add it to the fixed cost to determine his total cost. The marginal cost can be computed by taking the incremental total cost divided by the incremental output (Douglas, 2014).
Employees Variable Cost ($) Fixed Cost ($) Total Cost ($) Incremental Cost ($) Pizza Produced Incremental Output Marginal Cost ($)
0 0 1,000 1,000 0
1 500 1,000 1,500 500 75 75 6.67
2 1,000 1,000 2,000 500 180 105 4.76
3 1,500 1,000 2,500 500 360 180 2.78
4 2,000 1,000 3,000 500 600 240 2.08
5 2,500 1,000 3,500 500 900 300 1.67
6 3,000 1,000 4,000 500 1140 240 2.08
7 3,500 1,000 4,500 500 1260 120 4.17
8 4,000 1,000 5,000 500 1360 100 5.00 This shows that to minimize their marginal cost they should have five employees because this marginal cost is $1.67 and when you hit six employees their marginal cost increase with each added employee. Marginal productivity declines as companies hire more employees after a certain level. This is based on the law of diminishing returns which is if a company continues to add variable inputs to its fixed inputs in the production process,
Total Variable Cost = (Number of Workers * Worker’s Daily Wage) + Other Variable Costs
Q6: How much production fixed expenses should be allocated to 1 kg of "complete meal"? Give a specific number and your logic to support the
The budget analysis shows that the labor hours of the firm are higher than the budgeted amount. As such, the firm needs to evaluate the cost benefit analysis of making or buying their products. To make this decision, various factors need to be considered. Before making the decision, Peyton needs to evaluate the marginal costs and revenue of making versus buying the products. The firm should take the option which provides the highest marginal profit which is the
1. The local Mastermind store sells innovative educational toys. Part of their service is giving advice to customers about the best toys for a particular age group, which requires having more customer service representatives in the store. During the month long Christmas buying season, it makes half of its $500,000 yearly sales. Its contribution margin on average is 40% and its fixed costs for the year are about $150,000. The owner believes that she could make even higher sales, if she had more customer service representatives on the floor during the peak season. She plans on hiring four more people for 200 hours each at $20 per hour. How much additional revenue does she have earn to the nearest dollar
* Least expensive of the three strategies due to the lack of excess inventory and employee overtime
William is the owner of a small pizza shop and is thinking of increasing products and lowering costs. William’s pizza shop owns four ovens and the cost of the four ovens is $1,000. Each worker is paid $500 per week.
Big Tex wants his new manager (the same one mentioned in part d. above) to oversee a proposed hotel gift shop. The small gift shop will increase his ADR by 1%, his variable costs by 5 %, and his fixed costs by $24,000.
Of course we can express our opinions but we have to recognize that those opinions are ignorant to the context of said culture. However, since human rights are universal that implies a shared understanding of the duty of care and entitlements of people by virtue of being human. Young girls cannot give consent for the practice or perform an appropriate cost/benefit analysis for future risks as it relates to medical issues and cultural acceptance. The UN’s Convention on the Rights of the Child (CRC) is a legally blinding treaty that protects children’s rights internationally, and this may fall under that protection.
Would factory security and assembly activities be best classified at an appliance manufacturing plant as unit-level, batch-level, product-level, or organization-sustaining?
The following rule is the basis for comparison between the two and the unknown variables can be grouped using general arithmetic:
It consists of weighting and combining the weights of the ten factors and to evaluate implementing ABC. The potential benefits of ABC can be analyzed in advance along two separate dimensions. And there are ten mediating factors (Pricing Diversity, Support Diversity, Common Processes, Cost Allocation, Growth of Indirect Costs, Pricing Freedom, Fixed Expense Ratio, Strategic Considerations, Cost Reduction Effort, Analysis Frequency) can guide management in determining the answers. The fist five factors (PD, SD, CP, CA, FG) based on the probability. The second dimension of the model seeks to establish decisions. lY axis potential for ABC due to cost distortion---PD.SD.CP.CA.FG lX axis proclivity to use cost information in decision---PF.FE.SC.CR.AF To start management must analyze and responses to two key questions: 1. For a given organization, is it likely that ABC will produce costs that are significantly different from those that are generated with conventional accounting, and does it seem likely that those costs will be "better"? 2. If information that is considered "better" is generated by the system, will the new information change the dependent decisions made by the management? After finish these questions managers of company can discuses the ten factors that support or reject implementation. Finally, the combined weighted scores are plotted as a point on one of the four quadrants of a graph.Plotting the Answers--- Use Contingency Grid Method The steps in the
Based on the real world functioning of businesses, every organization that deals with the process of manufacturing of certain products operates in accordance with the main principle of maximizing its profits. During the performance of daily activities, many business managers face a series of questions related to planning, control and decision making. In order to give answers to all these questions, an additional analysis needs to be considered. It is very important for managers to plan carefully how they are going to generate sufficient money to pay down costs and, in this way to result with a profit. As managers are interested in having the adequate information about the influence that certain actions might have on the profitability of the business, "Cost Volume and Profit" analysis plays a significant role by being a potential tool in facilitating the process of making the right decisions regarding planning and control in order to add value to the company. (Trifan and Anton, 2011). To further illustrate the essential impact that CVP analysis has on management authorities in making better decisions, I will refer to and analyze the case of the Hampshire Company which follows as below.
The purpose of this paper is to answer a few important questions: Why do companies allocate costs? How do companies allocate costs? And how this cost allocation can affect the decision making of the company. It is important for the companies to find the proper method to allocate the costs. Cost allocation is an important issue in many companies because many of the costs associated with designing, producing and distributing products and services are not easily identified with the products and services that are created. It would have been easier for companies to allocate cost if costs were directly traceable with the products and the cost allocation would have been minor issue for the company. The decision-making
Assume you have been hired as a managing consultant by a company to offer some advice that will help it make a decision as to whether it should shut down completely or continue its operations. It currently uses 100 workers to produce 6,000 units of output per month (working 20 days / month). The daily wage (per worker) is $70, and the price of the firm's output is $32. The cost of other variable inputs is $2,000 per day. It also tells us that the firm's fixed cost is “high enough” so that the firm's total costs exceed its total revenue. The marginal cost of the last unit is $30.