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

Principles of incremental revenue and relevant costs, Shortflower Ltd curre...

Shortflower Ltd currently publishes, prints and distributes a range of catalogues and instruction manuals. The management has now decided to discontinue printing and distribution a

Apportionment of overheads, Apportionment of Overheads Apportionment...

Apportionment of Overheads Apportionment of overheads occurs whereas the net value of an overhead item is shared among more or two cost centers that employ the overheads. Th

Differential costing, What do you mean by differential costing ? How it dif...

What do you mean by differential costing ? How it differ from marginal costing ? explain its practical application with examples?

Calculate earnings, The Smiths have two children who live with them: Sandy ...

The Smiths have two children who live with them: Sandy and Judy. Both are full-time students. Sandy is an accomplished singer and made $4,200 during the year performing at special

Prepare the bank reconciliation statement, As the Junior Bank Clerk of a bu...

As the Junior Bank Clerk of a business, one of your monthly tasks is to prepare the bank reconciliation statement. At the month ending 31 January 2012, the bank statement has be

Goal congruence - behavioural aspects of standards, Goal Congruence - Behav...

Goal Congruence - Behavioural Aspects of Standards A perfect variance analysis and standard costing system must enhance goal congruence between as: i. The goal of individua

Evaluate the overhead allocation rate, Vintage Auto Company manufactures pa...

Vintage Auto Company manufactures parts to order for antique cars. Vintage Auto makes everything from fenders to engine blocks. Each customer order is treated as a job. Vintage Aut

Cost book-keeping, Cost Book-Keeping In cost account accounts, extensi...

Cost Book-Keeping In cost account accounts, extensive employ is made of control accounts that are based in the similar principles as those utilized in financial accounts.  Two

Compute overhead rate per hour, Reamer Company uses a predetermined overhea...

Reamer Company uses a predetermined overhead rate based on machine-hours to apply manufacturing overhead to jobs. The company has provided the following estimated costs for next ye

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