Variable Cost Assignment of Bilston - Essay Example

? REPORT Joe Major, President Bilston Fasteners Company. Variable Cost Assignment Costing is an important part of the decision making activities of management. The research focuses on the determining the fixed and variable portions of organisations’ financial reports. Determining the fixed and variable section of the coming income statement. I. The discussion of the cost elements include segregating the fixed and variable costs elemnts. which cost elements for Bilston should be considered fixed and which variable for short-term decision making. . In addition, the company must characterized some of the costs as fixed costs. The fixed cost are electricity, general and administrative, rent, depreciation expense, interest expense, and other factory costs. The company must some fo the costs as fixed costs. The variable cost are labor cost, raw materials, and repairs (Abele 2008). II. The standard contribution marging includes the variable costs and the fixed costs elements. Table 1 shows that the contribution margin for the wood screws is .0117. This is arrived at by deducting the variable costs from the revenues. The variable costs are the labour cost, raw materials costs, and the repairs costs. Table 2 shows that the contribution margin for Self Taffers is 0.0251. This is arrived at by deducting the variable costs from the revenues. The variable costs are the labour cost, raw materials costs, and the repairs costs. Table 3 shows that the contribution margin for the wood screws is .0118. This is arrived at by deducting the variable costs from the revenues. The variable costs are the labour cost, raw materials costs, and the repairs costs. Display of the company’s Profit and loss account for 2009 in contribution format. Table 4 shows that company’s profits and loss account for 2009 for its wood screws products. The company generated profit of 295 for the said year. Table 5 shows the revenues of its self taffers products for the year 2009. Table 6 shows the company’s Nuts and Bolts division’s profits and loss account for 2009 for its wood screws products. The company generated a loss of (219) for the said year. Table 6 shows the revenues of its self taffers products for the year 2009. The above discussions show that the company did not fare well in the two remaining product lines. On the other hand, the company did well in one of the three products scrutinized (Besley, 2008). III. Discussion of the company’s proposal to drop one of its failing products. Starting in January 2010 (based on 2009 figures). The company should not drop the nuts and bolts in January 2010 if the basis for the dropping is the 2009 annual income statement result. Continuing with production of the nuts and bolts generates a lesser loss of only 219.00 However, dropping the nuts and bolts section of the company’s production department would force the company to continue paying the fixed expenses. The fixed expenses are higher than the net loss of only 219.00 (Dubrin, 2008). IV. Discussion on whether the company should reduce prices of the wood screws to ?2.25 in the second half of 2010. The company should drop the price from to the lower 2.25. The lower price will generate a higher volume of revenues from 750 units to the higher 1,000 units. In addition the results of operations at 2.25 is higher than the results of operations for the prior higher selling price of 2.45 (Khan, 2006). V. The company’s total company profit forecast for second half 2010 assuming the price of woodscrews is dropped to ?2.25, again taking account of the variances. Table 7 shows that company’s woodscrews products will be sold at a lower selling price of ?2.25. The table 7 financial statement shows that reducing the price from 2.45 to 2.25 is a good management decision. The reduction in the selling prices generates an in crease in the revenues by 250,000 units. The results of operations for the 2.25 price is better than the result sof operations pegged at 2.45 price (Moyer, 2009). IV. Long term prospects for Bilston.The fixed cost allocations are important in writing down possible alternatives to accomplish the organisations’ goals and objectives (Redburn, 2007). Generally, the company’s main goal is increase revenues and net profits. The fixed expenses shown in no. 5 above can be reduced or eliminated to generate higher profits. The selling expenses can be reduced to more profitable levels. The marketing personnel can reduce their entertained expenses in order to increase the company’s net profits. The reduction in the marketing expenses include reducing the company’s advertisements (Weihrich, 2009). Rent expense can be reduced by transferring to a new office that has lesser monthly rent bills. The administrations, and the administration expenses can be reduced to more profitable levels. Likewise, management can reduce the other factory cost to minimal levels. For example, management can reduce the number of air conditioned rooms to more comfortable levels to reduce power costs. Consequently, management should conduct a feasibility study to determine the popular demands of the company’s current clients and as well as the wants, needs, and caprices of the future clients (Weele, 2005). REFERENCES Abele, E., (2008) Global Production: A handbook for Strategy and Implementation. London, Springer Press. Besley, S. (2008). Essentials of Managerial Finance. New York: Cengage Press. Dubrin, A. (2008) Essentials of Management. London, Cengage Press. Gibson, C. (2010). Financial Statement Analysis. New York: Cengage Press. Khan, M. (2006). Management Accounting. New York: McGraw Hill Press. Moyer, R. (2009). Contemporary Financial Management. New York: Cengage Press. Redburn, F. (2007) Performance Management and Budgeting. London: Sharpe Press. Weele, A. (2005) Purchasing & Supply Chain Management: Analysis, Strategy, Planning and Practice. London, Cengage Learning Press. Weihrich, H. (2009) Management. London, McGraw Hill. APPENDIX Table 1 PRODUCT BRANDS. Wood Screws TOTAL Price per Price UNITS 100 units per unit Sales 2132.01 2.42 0.0242 Labour 1293 0.61 0.0061 Raw Materials 1340 0.63 0.0063 Repairs 18 0.01 0.0001 Variable Cost   0.0125 Contribution Margin per unit 0.0117 Table 2 PRODUCT BRANDS. Self Taffers TOTAL Price Price UNITS per 100 per unit Units Sales 1029.654 2.52 0.0252 Labour 610 0.59 0.0059 Raw Materials 774 0.75 0.0075 Repairs 18 0.01 0.0001 Variable Cost   0.0135 Contribution Margin per units 0.0251 Table 3 PRODUCT BRANDS. Nuts & Bolts TOTAL Price per Price per UNITS 100 units Units Sales 986.974 2.7 0.027 Labour 688 0.7 0.007 Raw Materials 795 0.81 0.0081 Repairs 10 0.01 0.0001 Variable Cost   0.0152 Contribution Margin per unit 0.0118 Table 4 PRODUCT BRANDS. Wood Screws Sales 5168 Labour 1293 Raw Materials 1340 Repairs 18 Variable Cost 2651 Contribution Margin per unit 2517 Less Fixed Costs: Power 23 Rent 186 Other factory Costs 140 Selling Expense 911 Gen. Adm. Expense 345 Depreciation 565 Interest 52 Total fixed costs 2222 Profit 295 Table 5 PRODUCT BRANDS. Self Taffers Sales 2598 Labour 610 Raw Materials 774 Repairs 15 Variable Cost 1399 Contribution Margin per unit 1199 Less Fixed Costs: Power 25 Rent 157 Other factory Costs 110 Selling Expense 458 Gen. Adm. Expense 130 Depreciation 428 Interest 40 Total fixed costs 1348 Profit (149.00) Table 6 PRODUCT BRANDS. Nuts & Bolts Sales 2668 Labour 688 Raw Materials 795 Repairs 10 Variable Cost 1493 Contribution Margin per unit 1175 Less Fixed Costs: Power 30 Rent 187 Other factory Costs 110 Selling Expense 470 Gen. Adm. Expense 178 Depreciation 366 Interest 53 Total fixed costs 1394 Profit (219.00) Table 7 Wood PRODUCT BRANDS. Screws TOTAL UNITS Variance Selling price 2.45 Per 2.25 Units 750 1000 Sales (amount) 18.375 100 22.5 4 Labour 4.575 0.61 22.5 18 Raw Materials 4.725 0.63 6.3 2 Power 0.075 0.01 0.1 Repairs 0.075 0.01 0.1 0 Variable Cost 9.45 9.45 - Contribution Margin per unit 9 13 4 Less Fixed Costs: Rent 88 88 - Other factory Costs 65 65 - Selling Expense 426 426 - Gen. Adm. Expense 161 161 - Depreciation 264 264 - Interest 25 25 - Total fiexed costs 1029 1029 - Profit $ (1,020) (1,016) 4 Read More