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  • Cost Accounting: Hammad Hira Javeria Aiman Taha

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    Higher wages at Ford will increase the variable cost of manufacturing automobiles. To maintain current profit levels, Ford will need to either cut other variable costs or increase prices. For Kellogg's, an increase in fixed advertising expenses can only be covered by increasing sales volume. Vertical farming in skyscrapers could reduce variable costs like pesticides and water use while increasing fixed costs like building and lighting. A concert promoter calculating break-even point used a guarantee of $1.2 million to the band, $400,000 in other expenses, and expected $7 million from merchandise sales to estimate making $35 million in profit.

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    Cost cvp info

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    Cost

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    Higher wages at Ford will increase the variable cost of manufacturing automobiles. To maintain current profit levels, Ford will need to either cut other variable costs or increase prices. For Kellogg's, an increase in fixed advertising expenses can only be covered by increasing sales volume. Vertical farming in skyscrapers could reduce variable costs like pesticides and water use while increasing fixed costs like building and lighting. A concert promoter calculating break-even point used a guarantee of $1.2 million to the band, $400,000 in other expenses, and expected $7 million from merchandise sales to estimate making $35 million in profit.

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    40 views13 pages

    Cost Accounting: Hammad Hira Javeria Aiman Taha

    Uploaded by

    hira
    Higher wages at Ford will increase the variable cost of manufacturing automobiles. To maintain current profit levels, Ford will need to either cut other variable costs or increase prices. For Kellogg's, an increase in fixed advertising expenses can only be covered by increasing sales volume. Vertical farming in skyscrapers could reduce variable costs like pesticides and water use while increasing fixed costs like building and lighting. A concert promoter calculating break-even point used a guarantee of $1.2 million to the band, $400,000 in other expenses, and expected $7 million from merchandise sales to estimate making $35 million in profit.

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    of 13

    COST

    ACCOUNTING
    SHEIKH HAMMAD GHANI 1811135
    HIRA SHAIKH 1811110
    JAVERIA HASAN 1811112
    AIMAN TAHIR 1811103
    TAHA AHMED FARUQI 1811139
    Importance of Variable &
    Fixed Cost
    If Ford Motor Company meet workers’ demand for higher wages,
    what increase in sales revenue will be needed to maintain current
    profit level?
    ANS: Higher wages at Ford will increase the variable cost of
    manufacturing automobiles. To maintain present profit level, Ford
    will have to cut other variable cost or increase the price of its
    automobiles.

    What happen if Kellogg’s increases its advertising expenses but


    cannot increase prices because of competitive pressure?
    ANS: Sales volume must be increased to cover the increase in fixed
    advertising costs.
    Assumptions of
    CVP analysis
    Behavior of both costs
    and revenues is linear
    over the relevant range.
    All costs can be classified accurately into
    fixed or variable.
    Costs are solely affected by activity
    levels

    Quality of
    material
    used?

    Economies &
    Productivity?
    Diseconomies?
    All units produced are sold

    Production Sales

    In producing & selling multiple products,


    sales mix is assumed constant

    Product Product
    1 2 100%
    60% 40%
    Gardens in the sky
    The food production will increase by 70% in
    2050, and roughly 70% of the people will live in
    cities

    To address the lack of farmable land and reduce


    transportation cost, some have suggested
    building a vertical farming skyscraper in the
    cities.
    Variable costs such as the use of pesticides,
    herbicides, fuel and water would all drop, soil
    erosion will be eliminated and land
    requirements would drop.

    Other costs such as the cost of the building,


    artificial lighting will be higher.
    How a Rolling Stones’ Tour makes
    money
    How the promoter for the Rolling Stones’ tour used the
    break-even point and safety margin.
    One show should bring 70,000 people for a gross $2.45 million
    The promoter guarantees $1.2 million
    20% of the gross goes to the stadium
    $400,000 for other expenses
    The promoter also shares in sales of shirts for which he will get $7
    million
    The promoter could make $35 million

    What amount of sales dollars are required for the promoter


    to break-even?
    SKILLED LABOR IS TRULY
    ESSENTIAL

    Qs. Would you characterize labor cost as being a fixed


    cost, a variable cost, or something else in this situation?
    CHARTER FLIGHTS OFFER A
    GOOD DEAL
    Qs. How did flight serve determine that it would
    break even with 3.3 seats full per flight?

    Fixed costs ÷ Contribution margin = Break even point in seats per seat occupied
    Management Insight
    Something smells

    Contribution
    Contribution margin per
    margin square foot

    Limited resource?

    Sales mix?
    OPERATING
    LEVERAGE
    DEGREE OF OPERATING LEVERAGE

    CONTRIBUTION MARGIN ÷ NET INCOME


    THANK YOU!

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