Fixed cost

Currently, Orion produces the valve at a cost of $8,000 per unit and sells each unit for $10,000; resulting in a 25% mark-up. Orion has agreed to sell the modestly improved valve for $12,000 per unit when the variable costs alone are $10,500; $8000 per-unit manufacturing costs and $2,500 per-unit comprehensive test procedure costs. Orion has decreased its profit margin to 14% without even considering fixed costs. If the short-cut approach works, fixed costs would be $200,000, and Orion needs to sell

the red. In order to do this, we need to explain variable and fixed costs, period and product costs, and rewrite Grear Rafting’s income statement. Grear Rafting’s income statements is provided below. Grear Rafting Company Income Statement For the Year Ended December 31, 2008 Revenue $1,048,000 Rental Cost of Rafts and Camping Equipment

Exercises B. Ex. 19.1 B. Ex. 19.2 B. Ex. 19.3 B. Ex. 19.4 B. Ex. 19.5 B. Ex. 19.6 Topic Value chain components Capturing market share with target prices Cost of quality Cost reduction non-value-added activities Manufacturing efficiency in a JIT system Activity-based management cost savings B. Ex. 19.7 B. Ex. 19.8 B. Ex. 19.9 B. Ex. 19.10 Target costing Cost of quality Characteristics of quality Target costing and cash flows Exercises 19.1 19.2 Topic Accounting terminology Value chain activities 19

 vs.  Actual   $0.220 FC / Unit $0.200 $0.180 $0.160 $0.140 $0.120 0 20,000,000 40,000,000 Max Carton Capacity / year 60,000,000 Effect  on  Total  DC  Cost   Fixed and Variable DC Costs Sensitivity Parameters BC Current Sq Ft. (1000) 603 Capacity Carton/Yr 22,117,639 FC / Unit at Full Cap $0.168 Var Cost*

COST ACCOUNTING Select the one best answer for each: 1. Which one of the following would not be classified as manufacturing overhead? a. Indirect labor b. Direct materials c. Insurance on factory building d. Indirect materials 2. Prime costs of a company are $3,000,000, manufacturing overhead is $1,500,000 and direct labor is $750,000. What is the amount of direct materials? a. $1,500,000. b. $750,000. c. $2,250,000.

Note that Hair Cut will entail only to 60 kg per week (20 loads) or 240 kg per month (80 loads). COMPUTE FOR THE VARIABLE AND FIXED COSTS OF ELECTRICITY Electricity bills: Load (X) Amount (Y) January 1,960.00 17,208.00 February 1,820.00 16,746.00 March 1,680.00 16,284.00 April

Task 1: Cost Behaviours and Cost Classifications Cost behaviour is the

1-1 The total manufacturing cost per unit increases as total production volume increases. 1-2 Total variable costs change in response to changes in the volume of production. 1-3 The mixed cost per unit is constant throughout the relevant range of activity. 1-4 Fixed costs per unit decrease as production levels decrease. 1-5 A method used to separate mixed costs into fixed and variable components is called the high-low method. 1-6 The variable cost per unit is assumed to be constant

advertising. An analysis of increasing advertising is provided in Appendix H. 5. If fixed costs remain the same for 2007 as they were in 2006, average sales tickets would have to increase by $122.50. Appendix I provides a detailed analysis of how this figure was obtained. RECOMMENDATION Gretchen and Michaela should eliminate the sales commission. The company needs to avoid or reduce as many costs as possible during their rough patch. They have already incurred more expenses due to their

production of Product C, it could be assumed that this increase should be allocated to this product. Production of Product A is to be scaled down, but its level of fixed costs has been assumed to be unchanged. 2. On the basis of French’s revised information, what does