Managerial Accounting and Control Dr. Mohamed Youssef Lecture 5

8/14/2019 Managerial Accounting and Control Dr. Mohamed Youssef Lecture 5

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Managerial Accounting and control

Dr. Mohamed YoussefLecture 5

Part 5 : Compute the target sales price by various approachand compare advantage and disadvantageof these approaches

Target price = cost +make-up % of cost

Make up % : amount of profit in cost percentage.

Example:

Selling price is $1000

Year 2004:Selling price $1000

Less manufacturing cost $(600)Variable 400Fixed 200

Less marketing cost $(150)Variable 100Fixed 50

Less admin cost $(50)Variable 0Fixed 50

Operating income 200

Total Variable cost =400+100 = 500 Total cost = 800

Total manufacture = 600

Total Variable Manufacture cost = 400

1. Using variable manufacture cost

TP = V. Manufacture cost +mak-up % V. Manufacture cost= 400+(1000-400)/400 % * 400= 400+150% 400

TP = V. Manufacture cost +150 % x V. Manufacture cost

For year 2005 if Variable manufacture cost increase by 50 % what will bethe new target price

TP = V. Manufacture cost +150 % * V. Manufacture costNew V. Manufacture cost = 400+400 * 0.5 = 600TP = 600+150% * 600

= 1500

Chapter 5 & chapter 3 1


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2. Using variable cost

TP = Variable cost +mak-up % Variable cost= 500+(1000-500)/500 * 500

= 500+100 % * 500

TP = Variable cost +100 % * Variable cost

For year 2005 , if there is change in total variable cost by 20 % what will bethe new target priceNew Variable cost = 500+500 * 0.2 = 600TP = 600+150% * 600

= 1200

3. Using total cost

TP = Total cost +mak-up % Total cost= 800+(1000-800)/800 * 800= 800+25 % * 800

TP = Total cost +25 % * Total cost

For year 2005 , if there is change in total cost by 50 % what will be the newtarget priceNew Total cost = 800+800 * 0.5 = 1200TP = 1200+25% * 1200

= 1500

Example:

IfTP = Total cost +20 % * of salesAnd Total cost = $ 800, TP = 1000, if bid price 800 shall we accept thisbidding or notSo

TP = Total cost +20 % * of sales

800 = total cost +20/100 * 800Total cost = 800 160 =640So if we can reduce the cost to 640, we can accept this bidding



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Chapter 3

Measurement of cost behavior

Costs

Variable cost Mixed costs Fixed costs

Fixed Variable

Y= + * xY : Mixed cost

: Fixed cost

: UVCx: Cost drive activity in number of units

Example :

If fixed maintenance cost = 900, anf fanction of mixed cost as follow

Y= +0.41 * x what will be the mixed cost if cost drive is number of hours , ifthe number of hours equal to 10000 and the second time equal 5000

Y= 800+0.41 *10000 =10000

Y= 900+ 0.41 * 5000 =7950

To establish this equation we have two approuch

High-low method

Least squaresregression analysis (by computer)

Steps in estimiting acost function

Choose the dependent variable Identify the cost drive

Collect data on the dependent variable and the cost drive

Estimate the function

Evaluate the estimatd cost function


cost

Cost de


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Example: using high low method

Week Y X

1 2500 15002 1900 9003 2400 14004 4000 3000

= cost / cost drive= (1900-900)/(3000-900)= 2100/2100 =1 per hour

Y= + * xFrom high level

4000= +1 * 3000

= 1000Least squaresregression analysis (by computer)There are two types

Simple reg. Y= + * x

Multible reg. Y= + 1 * x1+ 2 * x2+ 3 * x3

Revsion

Chapeter 2

F.C and U.V.C remain constant BEP in units = (F.C+TOI)/UCM

$ =(F.C+TOI)/cm%

S-costs=0---- s-vc-fc=0 At BEP F.C =CM

Above BEF cm = operating incomeChapter 5

Specal sales orderIf special sales price > UVC accept

Remaining CM after avoidable was positive , the dept shouldcontinous , if negative shold deleted

Limited resources, we should convet ucm $ per hours

Target price = total costs + mak-up * total costs


Managerial Accounting and Control Dr. Mohamed Youssef Lecture 5

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