Therefore on that basis, all products, including pumps would be generating substantial contribution to overhead and profits. Therefore, given the overhead allocation problems, Wilkerson’s best bet would be to adopt the variable costing method for various reasons, as follows: 1. This cost concept provides a better understanding of the effect of fixed costs on the net profits, due to the fact that total fixed cost for the period is shown on the income statement. 2. 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.
Fixed costs do not fluctuate in reference with the quantity of production. They are called fixed costs since they are fixed regardless of the quantity of manufacture. The costs of facility payment are cover under the fixed cost. Every month is the same regardless of how many cars General Motors produced during that period of time. Elements that can influence variable cost are; supply and demand, task difficulty, location and effectiveness.
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.
Budgeting in this business helps as it can show how much money is coming in and out of the organisation, such as the CEO would be aware of how much they would need to spend on each department and how much would return as they would not wish to overspend and lose the money. Also using budgeting, it helps B.A identify inefficient expenditures and they can adapt quickly leading them to achieve their financial goals. This business uses budgets so it can set financial targets, to motivate employees and to assign responsibilities, to improve proficiency, to provide and turn strategic direction and objectives into practical reality, to monitor business performance and to control income and expenditure so the business does not overspend and to ensure there is enough capital set aside for emergencies. To conclude, this business uses budgeting in order to create an action plan for their business which can identify current available capital and estimates costs and anticipates
Any deviation in the ratio of mix may result in variance. Mix variance measures this variance. According to CIMA, Terminology, Material mix variance is defined as “that portion of the material usage variance which is due to the difference between standard and actual composition of materials.” The formula for the calculation of mix variance is: Material mix variance = (Revised standard quantity – Actual quantity) × Standard price or MMV = (RSQ – AQ) × SP Revised standard quantity is the standard proportion of total of actual quantities of all the materials used by the organisation. This can be calculated as under: RSQ = "Standard quantity of one material " /"Total of standard quantities of all materials " × Total of actual quantities of all materials Illustration 10: From the following data, calculate material mix variance. Also calculate price and usage variances.
Variable costs 220.127.116.11. Semi-variable/semi-fixed/mixed costs 3. Cost accounting techniques 3.1. Accounting for Materials 3.1.1. Classifications of inventories o Raw materials Raw material is the basic material that is processed and converted into finished goods.
However, for low production volume, the use of manual assembly of workers can be less costly (p. 149). The type of work lay-out, location of equipment and the processes involved are all taken into consideration to simplify work flow, labor requirements
The materials have to be easy to identify with the resulting product (otherwise it may consider as joint costs). One of variable costs is the direct material cost that involved in the production process such as it is used in the derivation of throughput from production processes. Production capacity is sales minus all totally variable expenses. Think of a direct material as a component piece of finished goods. For instance, finished computer has a number of parts and components on the inside of it.
Hence the management has planned to analyze and estimate the different types of cost and cost structure. The main objective is to control cost of the project to maximize the profit within the designated period with satisfactory quality of work. Cost structure: Cost structures for the construction, engineering and manufacturing firms have multiple characteristics. These are highlighted below; Fixed Costs: Fixed costs are business expenses which remain the same irrespective of the quantity produced by the business through its operations. These costs are generally time bound such as rent paid, monthly salaries and these can also be referred to as overhead costs.