Managerial Accounting And Control Dr. Mohamed Youssef Lecture 4 Begin

Managerial Accounting and control Dr. Mohamed Youssef Lecture 4 Begin inventory +production cost = sales +end inventory

Part 2 : Decide to add or delete a product line using relevant information Example: Dep1 Sales Less V.C C.M Less F.C Avoidable cost Un avoidable O/I

Dep2 7000 (6000) 1000

Total 8000 (7000) 1000

DepII 15000 (13900) 2000

8000 (7000) 1000

(100) (800) 100

(300) (100) 600

(400) (900) 700

(300) (900) (200)

In this example we must keep dept. 1 Avoidable Cost:

are costs that will not continue if an ongoing operation is changed or deleted Unavoidable Cost: are costs that will continue even if operation halted To decided to delete Dep. 1 or not If the remaining C.M after reducing avoidable fixed cost will not contribute any $ for covering F.C Or C.M > avoidable fixed costs Example: Dep1 Sales Less V.C C.M Less F.C Avoidable cost Un avoidable O/I

Dep2 7000 (6800) 200

Total 8000 (7000) 1000

DepII 15000 (13900) 1200

8000 (7000) 1000

(100) (1100) (1000)

(300) (100) (600)

(400) (1200) (400)

(300) (1200) (500)

In this example we must closed dept. 1 Example: X Y Total Sales 5000 4000 Less V.C (3000) (2000) C.M 2000 2000 Less F.C Avoidable cost (1500) (1000)

YII 9000 (5000) 4000

4000 (2000) 2000

(2500)

(1000)

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Managerial Accounting and control Dr. Mohamed Youssef Lecture 4 Un avoidable (2000) O/I (1500) In this case we closed X

(500) (500)

(2500) (1000)

(2500) (1500)

Part 3 : Compute a measure of product profitability when production is constrained by scare resource. Example: A UCM Units C.M

B

Total $8 200 1600

$5 100 500

2100

Our capacity is 4000 Machine hours, and unit from product A needs 2 H and from product B 10 H CM/ H for product A = 5/2 =2.5 CM/ H for product B = 8/10 =0.8 We can produce 2000 from product A For product A 2000 X 2 X2.5 = 10,000 or We can produce 400 from product B For product B 400 X 10 X0.8= 500 Before introducing the effect of scarce resource B mach better than Product A, but after producing a scarce resource product A much better than product B

Part 4 : Discuss the factors that influence pricing decisions in practice.

Theoretical Capacity 1000 u Practical Capacity 800 u Expected Capacity 700 u

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200 u 1 0 0

Un avoidable interruption

Idle Capacity Excess Capacity

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Managerial Accounting and control Dr. Mohamed Youssef Lecture 4 Theoretical Capacity: The Maximum number of units can be produced in practice Un avoidable interruption : Due to bad quality of row material for example Practical Capacity : What can actually produced Expected actually Capacity : What we decided to produced Expected actually capacity based on demand available in local demand Demand > P.c --------- Idle Capacity Demand < P.C ------- Excess Capacity Managerial Cost : an additional cost resulting from producing one additional unit ( F.C+V.C) Example: Volume

Unit cost price 5 Total 1 2 100 101 Managerial cost equal 5

Total 2000+5 2000+10 2000+500 2000+505

2005 2010 2500 2505

Managerial Revenue : an additional revenue resulting from sale of one additional unit Example: Volume

Unit sales price 50 Total Total 100 5000+500 101 5000+505 Managerial revenue equal 50

5500 5505

Price elasticity: is the effect of price changes on sales volume Difference in price / deference in sales If we change price by 10 % what I Sales 1000 1200

Price 15 14,5

Price elasticity = 0.5 /200

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