Objectives:
· Explain cost concepts and classifications for managerial decisions
· Calculate product costs and profitability
· Prepare a cost of goods sold statement
· Understand cost-volume-profit analysis and the BEP
· Prepare a projected income statement
Questions:
1. Discuss the various cost concepts that are part of the managerial decision-making process
2. List the costs involved in air-cooler manufacturing, and classify them for various managerial decisions.
3. Describe a cost system. Using the conventional cost system, estimate the profitability of each type of cooler that Harsh Electricals manufactures.
4. Prepare a cost of goods sold statement for Harsh Electricals.
5. Considering Harsh Electricals’ product and period costs, create a projected income statement for the calendar year 2014.
6. Calculate Harsh Electricals’ BEP in terms of units and volume.
7. Calculate the number of units that Harsh Electricals must sell to match the level of profit earned in financial year 2010-11.
IMPORTANT NOTES THAT WILL GUIDE YOU WHEN WRITING THIS ASSIGNMENT
Cost concepts are used in decision-making to enable managers to coordinate different activities, services, products and facilities.
Cost concepts that are part of the managerial decision-making process include cost of production, volume-volume and cost -volume relationships, marginal/total cost, pricing decisions and activity base.
The cost is an estimate of the cost for producing a good or service. It is based on historical information, such as data from previous years, as well as assumptions about future changes in costs and demand. The cost concept is a way to determine what price can be charged for products and services so that the company earns maximum profit.
Cost concepts are those concepts of cost that managers use to make decisions about the performance of their company. There are seven basic cost concepts: fixed, variable or mixed, direct or indirect costs and cost centers. Other specific measures that have been introduced are time value of money, depreciation and a unit which ‘expenses’. An example would be when choosing between two strategies regarding sales promotion campaigns. In order to determine which strategy is better you need to know (a) whether marketing expenses will increase or decrease as a result of growing sales volume; (b) whether direct costs will increase or decrease as a result of growing sales volume; (c) whether variable costs will increase or decrease as a result of growing sales volume; and (d) what level of sales volume should we grow at in order to maximize profit margin
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