This is one of the most essential components in budgeting. Without the forecasted cash flows of the business investment or venture to be assessed, capital budgeting is not possible. And to arrive with reasonable cash flow forecasts, the business should be able to identify the level of sales or demand for the business decision. To achieve this, the business will have to conduct an initial market study for their planned venture. Aside from the sales level, the business should also be able to identify the level of pricing that they will use.
This paper will give a main idea about the cost structure and cost behavior and also the importance of the cost structure and cost behavior to turn the business profit. 1.0 Introduction The purpose of this report is to evaluate why it is important for a manager to understand the cost structure and cost behavior. Managers will get information on
Also, various methods of controlling costs such as standard costing system and flexible budgets have close relation with the variable costing system, in turn making it easy to use those methods. 3. Companies using variable costing system are able to prepare income statement in contribution margin format that provides necessary information for cost volume profit (CVP) analysis. On the flip side, this data cannot be directly obtained from a traditional income statement prepared under absorption costing
Once operations begin, cost accounting reveals how efficiently the work is being done, where the strong and weak spots are, and how to improve performance. The cost of making a product or providing a service is one of the most critical in a firm’s ability to meet the competition. With cost information to support the decisions, management can issue directives, perform follow up activities, and obtain the operating results that ensure prosperity and growth of the enterprise which I will elaborate more on the second question. In the first question, I may or may not have directly or indirectly answered the second question but I will try my best to elaborate on a few key points as to how cost accounting can help organizations develop innovative new products and achieve continuous improvement. Cost accounting can be viewed as the intersection between financial and management accounting.
The method is used for decision making and planning in the organization and used by the managers of the organizations. Organization uses this method to have accurate costing allocation in the production. It helps to have an accurate value of cost and profitability of each products and services. This methods help to convert indirect costs into direct costs which helps to achieve an accurate costs. The method helps to support decisions related to pricing, removing or adding items from the product protfolio and implementing evaluating processes for improvemnets in the organiation.
Every small business requires resources so that it can operate effectively. At the same time, owners are always in search of the methods to reduce their operating costs to the minimal rate preserving a high quality of their services and not losing the loyalty of their employees and clients. Generating more revenue is quite possible when you decide to reconsider your operating costs strategy. Here are a few steps that will help you facilitate running your business and create more opportunities for development. 1.
For instance, a business owner may have just taken out a loan to launch a new product and that product is taking off. Their accounting profit will not be great at that time but they are selling units and will eventually turn an accounting profit. The opportunity cost was successful because even though they owe money they are creating brand recognition and loyalty, which could lead to future success. The last component I want to discuss in this paper is economies and diseconomies of scale. The ideal situation for a business is that it will grow, and the more they produce the less it cost to make that product.
Once that’s been done, the profit budget can be used to calculate the break-even analysis to determine or set a sales goals. Scheduling: The scheduling can be used to set tasks for employees and due date. Gannt chart can be used to keep track of the tasks development; whether it is on schedule, ahead of schedule or behind the schedule. Manager for Global Development: Quantitative Forecasting: Manager for global development would use qualitative forecasting to find what has changed in the environment over time. How a project is doing over time and has the quality of the project or the product
Cost of capital in connection to the capital budgeting using Net Present Value for any projected project or investment would be a factor for any successful industry with long-term goals and strategic design. Marketing. As the job entails, the purpose is to promote and attract more investors. If return is equal or greater than the required return compensating to the risk and time value of the money, then, investors would easily invest on any industry or business. It could be connected with the strategy since it is with the company’s way on how to gain or increase profitability by widening its market through expansion, branding, etc.
Some assumptions are need to be made when using CVP analysis and some of them can example as manufacturing cost, adminstrative cost overhead cost identified as either fixed or varable cost. The selling price per unit is constant, and all units prodcued are sold. CVP analysis help organizations to