Managerial Accounting And Control Dr. Mohamed Youssef Lecture 5

Managerial Accounting and control Dr. Mohamed Youssef Lecture 5

Part 5 : Compute the target sales price by various approach and compare advantage and disadvantage of 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 Less manufacturing cost Variable Fixed Less marketing cost Variable Fixed Less admin cost Variable Fixed Operating income • • • •

TP

400 200 $(150) 100 50 $(50) 0 50 200

Total Variable cost =400+100 Total cost Total manufacture Total Variable Manufacture cost

1. TP

$1000 $(600)

= = = =

500 800 600 400

Using variable manufacture cost = = = =

V. Manufacture cost +mak-up % V. Manufacture cost 400+(1000-400)/400 % * 400 400+150% 400 V. Manufacture cost +150 % x V. Manufacture cost

For year 2005 if Variable manufacture cost increase by 50 % what will be the new target price TP = V. Manufacture cost +150 % * V. Manufacture cost New V. Manufacture cost = 400+400 * 0.5 = 600 TP = 600+150% * 600 = 1500

Chapter 5 & chapter 3

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Managerial Accounting and control Dr. Mohamed Youssef Lecture 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 be the new target price New Variable cost = 500+500 * 0.2 = 600 TP = 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 new target price New Total cost = 800+800 * 0.5 = 1200 TP = 1200+25% * 1200 = 1500 Example: If TP = Total cost +20 % * of sales And Total cost = $ 800, TP = 1000, if bid price 800 shall we accept this bidding or not So TP

=

Total cost +20 % * of sales

800 = total cost +20/100 * 800 Total cost = 800 –160 =640 So if we can reduce the cost to 640, we can accept this bidding

Chapter 5 & chapter 3

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Managerial Accounting and control Dr. Mohamed Youssef Lecture 5

Chapter 3 Measurement of cost behavior Costs

Variable cost

Mixed costs

Fixed costs cost

Fixed

Variable

Y=α +β * x Y: Mixed cost α: Fixed cost β : UVC x: Cost drive activity in number of units Example : If fixed maintenance cost = 900, anf fanction of mixed cost as follow Y=α +0.41 * x what will be the mixed cost if cost drive is number of hours , if the 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

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Cost derive

Managerial Accounting and control Dr. Mohamed Youssef Lecture 5 Example:

using high low method

Week 1 2 3 4

Y 2500 1900 2400 4000

X 1500 900 1400 3000

β = ∇ cost / ∇ cost drive = (1900-900)/(3000-900) = 2100/2100 =1 per hour Y=α +β * x From high level 4000= α +1 * 3000 α = 1000 Least squaresregression analysis (by computer) There are two types Simple reg. Y=α +β * x Multible reg. Y=α +β 1 * x1+β 2 * x2+β 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 income Chapter 5 •

Specal sales order If special sales price > UVC accept • Remaining CM after avoidable was positive , the dept should continous , if negative shold deleted • Limited resources, we should convet ucm $ per hours • Target price = total costs + mak-up * total costs

Chapter 5 & chapter 3

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