Managerial Accounting and Control Dr. Mohamed Youssef Lecture 5
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Transcript of Managerial Accounting and Control Dr. Mohamed Youssef Lecture 5
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8/14/2019 Managerial Accounting and Control Dr. Mohamed Youssef Lecture 5
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Managerial Accounting and control
Dr. Mohamed YoussefLecture 5
Part 5 : Compute the target sales price by various approachand compare advantage and disadvantageof these approaches
Target price = cost +make-up % of cost
Make up % : amount of profit in cost percentage.
Example:
Selling price is $1000
Year 2004:Selling price $1000
Less manufacturing cost $(600)Variable 400Fixed 200
Less marketing cost $(150)Variable 100Fixed 50
Less admin cost $(50)Variable 0Fixed 50
Operating income 200
Total Variable cost =400+100 = 500 Total cost = 800
Total manufacture = 600
Total Variable Manufacture cost = 400
1. Using variable manufacture cost
TP = V. Manufacture cost +mak-up % V. Manufacture cost= 400+(1000-400)/400 % * 400= 400+150% 400
TP = V. Manufacture cost +150 % x V. Manufacture cost
For year 2005 if Variable manufacture cost increase by 50 % what will bethe new target price
TP = V. Manufacture cost +150 % * V. Manufacture costNew V. Manufacture cost = 400+400 * 0.5 = 600TP = 600+150% * 600
= 1500
Chapter 5 & chapter 3 1
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8/14/2019 Managerial Accounting and Control Dr. Mohamed Youssef Lecture 5
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Managerial Accounting and control
Dr. Mohamed YoussefLecture 5
2. Using variable cost
TP = Variable cost +mak-up % Variable cost= 500+(1000-500)/500 * 500
= 500+100 % * 500
TP = Variable cost +100 % * Variable cost
For year 2005 , if there is change in total variable cost by 20 % what will bethe new target priceNew Variable cost = 500+500 * 0.2 = 600TP = 600+150% * 600
= 1200
3. Using total cost
TP = Total cost +mak-up % Total cost= 800+(1000-800)/800 * 800= 800+25 % * 800
TP = Total cost +25 % * Total cost
For year 2005 , if there is change in total cost by 50 % what will be the newtarget priceNew Total cost = 800+800 * 0.5 = 1200TP = 1200+25% * 1200
= 1500
Example:
IfTP = Total cost +20 % * of salesAnd Total cost = $ 800, TP = 1000, if bid price 800 shall we accept thisbidding or notSo
TP = Total cost +20 % * of sales
800 = total cost +20/100 * 800Total cost = 800 160 =640So if we can reduce the cost to 640, we can accept this bidding
Chapter 5 & chapter 3 2
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8/14/2019 Managerial Accounting and Control Dr. Mohamed Youssef Lecture 5
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Managerial Accounting and control
Dr. Mohamed YoussefLecture 5
Chapter 3
Measurement of cost behavior
Costs
Variable cost Mixed costs Fixed costs
Fixed Variable
Y= + * xY : Mixed cost
: Fixed cost
: UVCx: Cost drive activity in number of units
Example :
If fixed maintenance cost = 900, anf fanction of mixed cost as follow
Y= +0.41 * x what will be the mixed cost if cost drive is number of hours , ifthe number of hours equal to 10000 and the second time equal 5000
Y= 800+0.41 *10000 =10000
Y= 900+ 0.41 * 5000 =7950
To establish this equation we have two approuch
High-low method
Least squaresregression analysis (by computer)
Steps in estimiting acost function
Choose the dependent variable Identify the cost drive
Collect data on the dependent variable and the cost drive
Estimate the function
Evaluate the estimatd cost function
Chapter 5 & chapter 3 3
cost
Cost de
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8/14/2019 Managerial Accounting and Control Dr. Mohamed Youssef Lecture 5
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Managerial Accounting and control
Dr. Mohamed YoussefLecture 5
Example: using high low method
Week Y X
1 2500 15002 1900 9003 2400 14004 4000 3000
= cost / cost drive= (1900-900)/(3000-900)= 2100/2100 =1 per hour
Y= + * xFrom high level
4000= +1 * 3000
= 1000Least squaresregression analysis (by computer)There are two types
Simple reg. Y= + * x
Multible reg. Y= + 1 * x1+ 2 * x2+ 3 * x3
Revsion
Chapeter 2
F.C and U.V.C remain constant BEP in units = (F.C+TOI)/UCM
$ =(F.C+TOI)/cm%
S-costs=0---- s-vc-fc=0 At BEP F.C =CM
Above BEF cm = operating incomeChapter 5
Specal sales orderIf special sales price > UVC accept
Remaining CM after avoidable was positive , the dept shouldcontinous , if negative shold deleted
Limited resources, we should convet ucm $ per hours
Target price = total costs + mak-up * total costs
Chapter 5 & chapter 3 4