ME 2605 -Performance and Cost analysis

AMRISH GUPTALI HONG

RAMESH KHANAL XIONG JIE

INTEC ENTERPRISES

Product portfolio

Value Chain

Milk CanKitchen Utensil

Pump&MotorsAgriculture Equipment

Research and

Development Procurement Assembly

Quality Control

PRODUCTION Selling & administration

Fasteners

Cost centre, profit center, invest centre

Managerial Strategy

• Price taker facing long term product-mix decisions – Activity based profitability analysis essential.

• Target costing – non-customized high sales volume products.– Price dominates markets.

Second Stage AllocationFirst Stage Allocation

Traditional approach

Assigning to final product

Traditional approach

Second Stage allocation

ABC Approach

First Stage allocation

Assigning to final product

ABC Approach

Cost Comparison

Break Even Analysis

Product line A

0

500000

1000000

1500000

2000000

2500000

0 5000 10000 15000 20000

quantity

amo

un

t FC

TC

Revenue

Product line B

0200000400000600000800000

10000001200000140000016000001800000

0 5000 10000 15000 20000

Volume

Am

ou

nt FC

TC

Revenue

Product line C

0

200000

400000

600000

800000

1000000

1200000

1400000

0 5000 10000 15000 20000

Volume

Am

ou

nt Fc

TC

Revenue

Sensitivity to Volume

1630.0

1640.0

1650.0

1660.0

1670.0

1680.0

1690.0

1700.0

1710.0

1720.0

-12% -7% -2% 3% 8%

Th

ou

san

ds

% change

To

tal o

ve

rhe

ad

Receiving Cutting & grinding

Machining Gen Assembly

Selling and Admin

Sensitivity to total over head

Break Even Analysis