Issues to consider when making decisions, Cost Accounting

Assignment Help:

Q. Issues to consider when making decisions?

At activity level A it can be seen from diagram that sales revenue line intersects the total cost line specifying that this is the point when company makes no loss or profit that means breakeven. Any activity beyond this point sales revenue would exceed total costs causing the company to make a profit, and anything below this activity, total costs will exceed sales revenue causing company to make losses.

After activity level B fixed costs will increases sharply due to perhaps new investment required in manufacturing process and profits will be reduced compared to just before activity level B. Operational mangers needs to consider whether sales revenue forecast is likely to hold true, if not then profits can be decreased significantly as a result of this investment.

Between activity levels B and C sales revenue line has a much higher gradient line than total costs and company is earning greater profits as it increases its activity. Profits are maximised just before point C when beyond this point sales revenue line is increasing at a slower rate when compared to total costs.

At activity level D there is another sharp increase in fixed costs and also variable costs are rising at steeper gradient to sales revenue. Operational manger must recommend to company to continue to produce activity as long as extra revenue is greater than extra cost or variable cost.

2291_Costs and revenues over a range of activity levels.png


Related Discussions:- Issues to consider when making decisions

Compute the most profitable combination of products, GZ Inc. manufactures t...

GZ Inc. manufactures two products that require both machine processing and labor operations. Although there is unlimited demand for both products, GZ could devote all its capacitie

Prepare cost sheet, A job order cost sheet for Lowery Company is shown belo...

A job order cost sheet for Lowery Company is shown below Date Direct Materials Direct Labor Manufacturing overhead Beg Bal Jan 1 5,000 6,000 5,100 8 6,000 12 8,000 6,400 25 2,000 2

Working capital, We have earlier explained working capital by total current...

We have earlier explained working capital by total current assets less current liabilities. It, in other words, implies that all the assets held through the business along with the

What is life-cycle costing, Consider the following information, prepared ba...

Consider the following information, prepared based on a capacity of 40,000 units: Category Cost per Unit Variable manufacturing costs

Cost accounting, raw an organization chart of any actual or hypothetical ma...

raw an organization chart of any actual or hypothetical manufacturing organization to show the position of management/cost accounting department within an organization and discuss

Compute cost, Your company completed the East Side subdivision. The costs a...

Your company completed the East Side subdivision. The costs are shown in Figure 11-4. The site concrete labor and outside lighting were done by subcontractors. The grading and exca

Calculate the monetary of the inventory, Learning Objective: After completi...

Learning Objective: After completing the project, the student will have gained familiarity, understanding and mastery of programming a realistic but simple application in Assembly

Determine the expected rate of growth of dividends, General Motors has to r...

General Motors has to raise new capital in one of the following three ways. Using the income tax rate of 32%, find the after-tax cost of new capital in each case. (A) Sell commo

Bases of cost classification, Bases of Cost Classification These vario...

Bases of Cost Classification These various bases of cost classification are summarized in the diagram underneath as: Here, we will usually refer to either of these ter

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd