Though revenues may not have been received for the products manufactured because some could be in inventory, all expenses for the period are reported as paid. When all finished products in inventory is finally sold, a surplus income will be reported. However, by ignoring fixed manufacturing overhead costs, variable costing may understate a product’s overall cost. Manufacturing overhead is important because, though the costs included in overhead do not contribute directly to the creation of the product, there is still some residual effect on the production that drives up the cost to produce. Variable costing also carries the disadvantage of showing full payment for fixed-overhead expenses for the accounting period.
Finally, an MRP system aids plan manufacturing functions, delivery schedules and purchasing . De Bodt and Wassenhove  studied the effect of costs under a single-level MRP environment with uncertainty in demand, a time horizon and decision making around lot sizing, safety stocks were considered. The authors showed that the forecast errors have an important effect on the relative costs of the lot sizing and safety stock decisions, and the differences in the estimated costs are significant for different techniques in the presence of forecast errors. Also, their results display that the safety stock and lot-sizing policies are important for companies that use MRP under an uncertain environment. John et al.
The customer’s demand is expressed as a function of time, price and credit period which is appropriate for the products for which demand increases initially and after sometime it starts to decrease. In order to reduce the holding cost of supplier, the production is considered as one of the decision variable, which is directly proportional to the customer’s demand rate. The aim of this paper is to maximize the joint profit for supplier and retailer. Some numerical examples are demonstrated for validation of the developed mathematical model. Finally, implementing sensitivity analysis on the decision variables by varying the inventory parameters, effective managerial insight are generated which is beneficial for players of supply chain.
this is the point of efficient sale o production. Short Run and Long Run Average Total cost • In the long run Average Total Cost (ATC) shows the ability of the company to invest in new fixed assets (in our case, a new bottling plant) Thus during the long Run, variable cost becomes fixed now. Therefore during long run Average Cost curve is more flatter ‘U’ Shaped curve than the short-run AC
This way produced financial statements therefore increase transparency of a firm, which is particularly useful to potential investors, contractors and lenders, as they have a better perception of the stability of a given firm and insight into its. It provides a measurement of true income There is less of an opportunity to manipulate accounting data using the fair value approach. Instead of using the sale of assets to affect gains or losses, the price changes are simply tracked based on the actual or estimated value. The changes to income happen with the changes to the asset value, reflected in the final net income numbers. It is the most agreed upon standard of accounting Instead of the historical cost value that isn’t always accurate after a long period of time, fair value accounting accurately tracks all types of assets, from equipment to buildings to even land.
o Cost-plus contracts, where customers are committed to pay the costs incurred plus agreed profit margin. As the result, actual costs must be used in this case. Although the customer pays all the costs, lower costs (achieved by their effective management e.g. by using standard costing) means a lower price for the customer and as such more competitiveness for the
Financial ratio analysis helps management (1) maintain sufficient working capital to support operations; (2) project how changes in sales, costs, prices and so on will affect capital needs and profits; (3) analyze management performance; and (4) measure the profitability of company units, products and departments. From a management perspective, the rationale for use of financial ratio analysis is that by expressing several figures from financial statements as ratios, information will be revealed that is missed when the individual numbers are observed. The theory is that managers can then use this information to improve the efficiency and profitability of their operation. Associated with this theory is the implicit assumption that information from ratio analysis, especially trend analysis, enables management to foresee and possibly avoid business failure (Thomas III and Evanson, 2006). Several practitioner-oriented publications suggest that financial ratios do not vary with firm size within an industry (Westwick 1987 and Centre for Interfirm Comparison 1977).
In addition, there should be significant improvements in profitability and operating efficiency after the LBO when corporate structure’s comprehensive changes are made, typically layoffs and employment redeployment or complete riddance of unnecessary company divisions. • Tax advantages: A high level of debt provides the benefit of tax savings realized due to the tax deductibility from interest expense. • Management incentives: Large interest and principal payments from the use of leverage can force changes in managerial behavior to improve performance and operating efficiency, specifically to focus on certain initiatives such as divesting non-core businesses, cost cutting or investing in technological upgrades. Also, through investment alongside management, PE firms can encourage top executives to commit a significant portion of their personal net worth to the deal in order to guarantee that management’s incentives will be aligned with their
Job costing involves keeping an account of direct and indirect costs. Since both types of costs are usually closely related (a job requiring high input of labor and material is likely to consume more power, machine time, supervision time, inspection time, etc.) indirect costs may be applied as an estimated fraction of direct costs. Job costing methods are similar to contract costing and batch costing methods, and are used in construction, motion picture, and shipping industries, in fabrication, repair, and maintenance works, and in services such as auditing.” (BusinessDictionary.com) Organizations incur a variety of costs in their operation. These costs are very different from one another and need to be treated differently to give an accurate picture of the
(Salah, 2010)states that earnings management can used to develop managements own situation. When bearing in mind the practice of earnings management, the Agency Theory explicates the existence of the incentive for management to use earnings management. As explained earlier managers are liable to have an information advantage over the principal due to the day-to-day information and the insider knowledge. The motivation to use earnings management can occur from conflicts of interest, for instance when the purpose of the management vary from those of the shareholders. Moreover, management might try, by using earnings management, to deceive shareholders by showing a diverse image of the company’s earnings.