Mario was thinking of going into the bakery business. Mario knows that the bakery business holds a lot of uncertainty, his decision about prices, cost and production are critical for business survival, at the same time; he has to determine the pulse of the market. However, if he decides to work in another business, his choice will involve an opportunity cost. If Mario decides to push for the bakery business, he needs some money to start up his business.
Total fixed Cost
Mario first decision is buy an oven. He thinks about this choice, there are so many ovens in the market. There are electricity fed oven, gas fed a combination of electricity and gas or he can have the old-fashioned wood fed oven. For a starter he choose a small type gas fed oven that can cost P40,000. The electricity and gas fed model cost P500,000. Mario chooses the small gas fed oven, he is thinking of the depreciation of the equipment and the opportunity cost. The oven is a fixed input its cost does not vary with the number of output produced. Now, even if Mario use or do not use the oven it depreciates. The depreciation cost is a fixed cost. Mario choose the small gas fed model that cost P40,000. This oven can bake 500 pieces of bread in an 8-hour operation.
Calculating Fixed Cost
The oven depreciate in 20 years with no salvage value therefore the depreciation cost is (1/20) (P40,000) P2,000/year. In a day of operation the fixed cost is P2,000/yr x 1 year/365 days = P0.54
Total Variable Cost
Mario is thinking about the variable cost of running the business. He needs workers, baking equipment, flour, lard, oil, water, sugar, yeast and baking powder and fuel. These items are the variable cost for baking these varies with the quantity of bread produced. If ...
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...ery reserve of replacement parts, equipment and maintenance workers who can repair random equipment breakdown increases less than the increases in the size of the bakery. The maintenance cost spread over a large volume of output thereby reducing the average cost per unit.
Firm-level economies, a situation where economies of scale occur due to a multi-product and multi-plant firm. Attainment of efficiency is through the reduction of delivery cost due to the geographically dispersed multi-operational plants. In addition, the firm can secure quantity discount in advertising media and can spread their advertising fixed cost over more units produced. It is also easier for large firm to engage in technological advancement through their research and development (R&D) activities. They can spread the cost of buying expensive equipment and hiring research personnel.
Explanation: For our first product, the Isolation, consisting of Fries and Drinks, expected demand for the month of August is 373 units. One unit of isolation needs potato fries, cooking oil, juice powder and water, cup and straw. Total quantity for the fries would be 46,563.30 grams (Fries 125 grams/serving); this would consume a total volume of 12,404.469ml of oil (Oil 33.3ml); for the juice 4,656.33grams of powdered juice along with 5,960.10 ounces of water (Juice powder 12.5g and Water 16oz/order); total cups and straws would then be 373 pieces. In order to meet this demand for the month of August, we must be able to sell at least 16 orders per day. For the month of September, our expected demand is 380 units of Isolation (Fries and Drinks).
The sales director proposed that if the firm were to reduce the price of Item 345 to FF15.00/m, they would be able to increase sales to 175,000 units (or 25% of industry volume). But if they were to keep the price at the current value of FF20.00/m, they would be able to sell not less than 75,000 units (or 11% of industry volume).
a used car for one year. To show the different costs for cars I have made a
Business growth general is assumed to be good; bigger is assumed to be better (Hess, 2011), but if the proper planning is not in place it can lead to a business failure. Beginning a business based on something she loved, and needed in her life Susan Feller made the brave decision to build a successful business by baking and selling gluten-free cakes and desserts. After her retirement she focused on her dream and solving her own issue, finding food safe and healthy to eat for those, like herself, with Celiac disease and gluten allergies, but they also had to be delicious. Feller had some tough decisions to make as a small business owner, would she be able to keep up with the demand, how can she grow her business and what if she decided she had had enough and wanted to close the business? These are all decisions any business owner have to face at one point or another.
Signode Industries Inc. - Providing Packaging Solutions Executive Summary SIGNODE INDUSTRY: DILEMMA AT HAND: Mr. Gary Reed, President of Signode Industries packaging division, is in a dilemma as what he should be his course of action to meet the 6.8% increase in price of cold rolled steel- the raw material used in manufacture of Signode’s primary product, steel strapping. There are few options given in the case: Increase Signode’s strapping prices to offset the increased price of cold – rolled steel. Maintain Signode’s current book prices as increasing prices would affect sales force morale. Introduce price-flex model as proposed by Jack Davis i.e. a kind of selective discounting or premium charging for customized services. Recommendations Reason: (All data in accordance to 1983) In accordance to Exhibit 1: Sales of Packaging Division of the company = $285,950 In accordance to Table A: Sales of Apex = 33.3% of $285,950 Sales of BBM = 26.8% of $285,950 Sales of HDM = 33.4% of $285,950 Sales of Customized Products = 6.5% of $285,950 In accordance to Exhibit 4: Similarly, For Apex: As it has a capacity utilization of 71% now, Suppose a sale is $100. Then contribution is $39.15 Therefore variable cost is $60.85. Now if we increase the capacity utilization to 100%, Sales becomes $ 141 since production increases by [(100-71)/71] * 100 = 41% Variable Cost = 141% of 60.85 = $85.8 Fixed Cost = 69.38% * 12.3 = $8.53 Total Cost = 85.8+8.53 = $94.33 EBIT = Sales – Variable cost – Fixed Cost = $46.67 % of EBIT = [(46.67/141) * 100] = 33.09% Suppose the company sales 100x units, the total cost was 69.38. Thus per unit cost was .6938. Now the company sells 141x units, the total cost...
Reducing risk ; reducing the quantity of manufactured so that reducing burden of stock and burden of frequent discount sales
The contained paper has been prepared with objectives of elaborating over the three different costing methods namely, Absorption/Full Costing, Variable/Marginal Costing, and Activity Based accounting. The first segment of the report seeks to define and illustrate the costing methods based on the personal understanding of the writer gained through the class room and the academic readings. Part two of the report takes a form of short essay, written critically to evaluate the application of standard costing and variance analysis to any size of business, and concludes with a verdict that whether or not standard costing and variance analysis is applicable to each business with consideration of its costs and benefits of the system.
To begin the analysis on Krispy Kreme, the first analysis is that of the depreciation analysis. There are three different methods to calculate depreciation and they are straight-line, units-of-production and double-declining-balance (Larson, Wild, & Chiappetta, 2005). The Krispy Kreme Company uses the straight-line method to calculate their depreciation on building, machinery, equipment and leasehold improvements. The breakdown of the depreciation on property and equipment consist of land, buildings, machinery and equipment, leasehold improvements and construction in process (Larson, Wild, & Chiappetta, 2005). Krispy Kreme’s total gross property and equipment in 2002 was a total of $156,484,000 and in 2003, it was a total of $252,770,000. The accumulated depreciation for the year 2002 was a total of $43,907,000 and for the year 2003, the total was $50,212,000. To find the net property and equipment amount, taking the gross property and equipment and subtracting the accumulated depreciation is the equation used. The net property and equipment for the year 2002 would be $112,577,000 and 2003 would be $202,558,000. Once b...
Over ten year ago, the economy of the United States faced crisis because of the war of Iraq. The gas price went up to four dollars per gallon. No people want to buy automobiles. The result made many companies had been closed especially automobile factories because no jobs and have financial problems. The American tool and die company was one of many companies had trouble with financial. To solve this problems, the American tool and die company needed to create a group of decision making to help the company. Mr. Brofft considered the employee interest but his decision did not move anywhere while the decision of Mrs. Mueller was better but it was not considered the interest employees of the company. In order to reach the most effective decision, Mrs. Mueller and Brofft must careful consider the impact of changing the location of the American Tool and Die Manufacturer and try to find a solution that minimizes bankruptcy and protect the future of the manufacturer. Creating an emergency fund, investing in
For instance, if a business wants to produce 5,000 more t-shirts, yet it will require the purchase of another machine, the marginal cost for the extra t-shirts includes the cost of the new machine. A marginal product describes the additional output that results from adding one more unit of input. It can be calculated by dividing the change in the total product by the change in the variable input. For example, in order to increase the t-shirt productivity by 1000 units, the company may hire two new employees to the production line. In which case, the total change in product is 1000 units. Although, hiring two more employees increases productivity, now the law of diminishing marginal product applies. Diminishing marginal product primarily indicates that increasing one input while retaining other inputs at the same level will initially increase output; however, further increase in the output level will eventually diminish. For example, hiring an extra two employees to increase productivity, will eventually have a limited effect or diminish the average income. Production function is a graph utilized to demonstrate the relationship between physical inputs and outputs, define marginal product, and distinguish allocative
Scale Economies: the industry contains several very large players and multiple medium to small players
For example: with the increase of the number of products produced, the cost of operating a machine also increase. Second we have batch level costs which is associated with batches; producing a multiple units of the same product that are processed together is called a batch. The third type is product level costs which arise from any activity in order to support the production of products. The fourth and the last type is facility level costs, this costs cannot be determined with a particular unit, product or batch; this costs are fixed with respect to batches, products and number of units produced. A single measure of volume is used for allocating costs to each service or product in traditional method for example: direct material cost, machine hours, direct labor cost and direct labor hours. A cost driver is an activity that generate costs, it can be generated by two types of costs the first is a particular machine 's running costs where the costs is driven by production volume as machine hours; the second is quality inspection costs where the cost is driven by the number of times the relevant activity occurs as the number of
The first part provides reasons why starting a new business is profitable in terms of having higher or bigger possibility for growth of the business and higher rate of return. The second part highlights the originality of starting a new business as an entrepreneur. The last part mentions why starting a new business is more entrepreneurial than franchising in terms of entrepreneurial skills and
My family and I often visit family in Chicago, and when we do, we always go to the Oak Mill Bakery. Every time we have gone we are greeted with spectacular customer service and mouthwatering treats. The bakery specialty is European style baked goods and has been in business since 1986 (Oak Mill Bakery, n.d.). Oak Mill strives to use all natural ingredients, which is one on of the reasons my family makes an effort to visit every time we are in town. The bakery serves cakes, cookies, cupcakes in many different styles. As noted before, they have a European twist to all their sweets, which makes them mouthwatering and unforgettable.
A “Fixed cost” can be defined as “a cost that does not change with an increase or decrease in the amount of goods or services produced or sold”. It is time related.