That is includes all the cost in warehouse management such as rental, employees’ salaries and utilities, and also opportunity and inventory cost in financial cost which is related to perishability, shrinkage and insurance. Oppositeness, the storage space cost which provided by third party logistics provider area allocated as inventory carrying cost because this cost are usually are charged based on the quantity of the goods. Holding cost Holding cost is the costs that are related with storing inventories that have not sale yet. This cost is one of the element costs of total inventory, with ordering cost and shortage cost. Moreover, damaged or rejected goods, storage space cost are also classified as holding cost.
Wilkerson is currently using the traditional costing system. “Companies that use the traditional costing method assume that the volume metric is the underlying driver of manufacturing overhead cost.” Traditional product costing was established when direct material costs and direct labor costs accounted for the bulk of product costs incurred inside a firm. In the Wilkerson company, materials and labor costs are centered around the prices of materials and labor rates. The two factors that demonstrate that the traditional system may produce estimates that are different than that of the unit cost are high overheads and indirect cost
This is calculated by determining the weight average cost of capital. Similarly the cost of capital is made up of equity and debt. Hence for the firm to maximise profit and obtain shareholders wealth the organisation must sell goods, contributing to the total revenue minus the total cost. Therefore the remainder or excess surplus is known as profit maximisation. In light of this when profits are maximised the firm make decisions to access shareholders wealth through the means of equity.
Also, they pointed the graph that every firm should use in order to find their optimal WACC. Pratt and Grabowski ( 2008 ) state that the WACC should be found when dividing DEBT/ TOTAL CAPITAL and that represents for one company ideal and optimal WACC. Also, they state that WACC should be higher than the cost of debt but lower than cost of equity, rather it should be somewhere in the middle of these two, depending if the amounts of debt and equity are the same. The WACC calculation will give us the discount rate at the end. That rate represents how much we are on average paying interest for the money we have borrowed from various sources.
Transfer Pricing, meaning the “setting, analysis, documentation, and adjustment of charges made between related parties for goods, services, or use of property (including intangible property)” In simple words, transfer pricing can be defined as “the price at which divisions of a company transact with each other”. Transfer pricing happens whenever two companies that are part of the same multinational group trade with each other. One party transfers to another goods or services, for a price. That price is known as "transfer price". It thus refers to the value attached to transfers of goods, services and technology between related entities and also to the value attached to transfers between unrelated parties which are controlled by a common entity.
To compute the contribution margin ratio, divide CM by the Selling Price. One of the first applications of variable costing is computing the break-even point. This is the point at which sales just equal to the total costs. It can be defined as either units or sales dollars. Break-even units is the number of units required to cover fixed costs for a period of time.
Net Realizable Value (NRV) or ceiling placed at the market value of inventory is generally recognized as upper limit placed on market value. Net realizable value means / rule as a difference between the expected selling price of inventory and the addition of expected completion cost and expected future expenses which a company must pay to make that sale
However, the inventory and cost of goods sold balances can vary dramatically in any given period. The LIFO Reserve To overcome this issue, many companies maintain their internal records using FIFO, weighted average cost but external reporting using LIFO for income tax
This form is usually filled as materials are taken from the raw materials inventory and utilized as part of the job; this is tracked by adding them to work‐in‐process. This is done in order to ensure that materials costs are correctly allocated to jobs in process. And important concept in Job Order Costing is Predetermined Overhead Rate. In order to save time and allocate cost as they are incurred, overhead costs are allocated to jobs in process using a predetermined overhead rate. The predetermined overhead rate is identified as part of the budget and planning process by estimating total factory overhead costs and dividing these total costs by the estimated total cost driver or activity base chosen by the organization, typically this can be something like Direct Labor Hours or Direct Labor
Depending on the industry the company is active in, the inventories may consist of different things; e.g. raw materials, works in progress or finished goods. Managing and optimizing inventory levels are tedious tasks which require balancing between sales and tied-up capital. In case the inventory levels are too low, the company might miss out on sales when demand arises or might not be able to deliver goods on time. On the other hand, too much inventory ties up capital that can be used elsewhere more effectively.