(Mt) – Wilmington College Cost Behavior Patterns #038; Cost Volume Profit Discussion

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ACTUAL QUESTION (for ref. only, don’t answer for questions below instead read s in next page) Write an analytical summary of your learning outcomes from chapters 5 and 6. In addition to your analytical summary, address the following: As a manager, discuss how you would use or have used the concepts presented in chapters 5 and 6. Provide numerical exles to support your discussion. NOTE: Read three posts below given and write responses for 3 posts each separately Post-1 Cost Behavior and Cost-Volume-Profit Analysis Profit is the main drive to many organizations, especially the profit-oriented organizations (Popesko #038; Novák, 2014). Having achieved a specific target this month, it does mean the business should sleep and continue with the same operations and wait for the next time. Perhaps, if everything remains constant, many companies will record losses. Therefore, business leaders should have ways to predict future sales and profit. Therefore, to make such a prediction, these leaders should understand their respective organizations’ cost behavior patterns. As described in chapter 5, three cost behavior patterns enable the manager to make precise decisions as they predict what will happen in the future. This cost behavior pattern includes; variable cost, fixed cost, and mixed cost considering the variable cost, which changes with production units. They have direct material, direct labor, and manufacturing overheads. For exle, if a company produces bikes for selling, it means if the company can buy many parts of the bikes, they will build many bikes. The same happens with labor and manufacturing overhead. Fixed costs remain constant regardless of the number of units produced. Chapter 6 is talking about break-even and cost-volume-profit analysis. This relationship relates to two factors, which should be considered to achieve the organization (Kim, 2015). They include cost, volume, and profit. The analysis is driven through the equation profit= Total sales-Total variable cost –Total fixed cost, equal to (SXQ)-(VXQ) F. The break-even point is described as when the number of units produced is equal to the number of units sold. Therefore, it means the company has achieved a zero profit. According to this specific chapter, the author points out the target profit in units. Many organizations usually set targets but achieving becomes difficult. First, setting such a mark, managers need many product units to be sold to achieve a personal profit. For exle, if a particular company breaks it even point at 500 units and targets to earn a profit of $30,000. Then it means that selling beyond 500 units contributes to $100 toward profit. Then having sold an additional of 300 will enable to business to achieve the target price of $30,000. Hence, 800 units should be sold to reach the $30,000 target. References Kim, S. (2015). Cost-Volume-Profit Analysis for a Multi-Product Company: Micro Approach. International Journal of Accounting and Financial Reporting, 1(1), 23. Doe: 10.5296/ijafr.v5i1.6832 Popesko, B., #038; Novák, P. (2014). Implementation of the Process-Oriented Costing System in a Hospital Department. International Journal of Trade, Economics, and Finance, 82-87. Doe: 10.7763/ijtef.2014.v5.345 Post-2 In chapter 5, the main objective of the chapter is to discuss about the cost behavior patterns. It explains that cost behavior changes according to the units sold. Some costs will not change even there is change in sales volume and some costs change when there is a change in sales volume. So, it is a big challenge for organizations to identify when the cost change and remain same. There are three cost behavior patterns to identify the changes and they are variable, fixed and mixed costs. There is a detailed explanation of all three behavior patterns with numerical exles and formulas, which helps for better understanding. As variable costs describe the changes in total costs, but not for cost per unit. It shows the how find the solution for activities that cause variable costs to change. So that, they can find an accurate variable cost to estimate for any costs. However, the fixed costs are quite opposite to the variable cost. For instance, variable costs vary when there is change in volume of activity, but fixed costs remain same even after change in activity. This gives the better detailed explanation about costs with numerical exles and graphs. Moreover, the advantage of this chapter is to learn about mixed costs as well. We all know that these cost types are used when they are estimating the costs, but there are two major concepts that is important while learning about how to calculate the estimation costs. They are short-term versus long-term and relevant change. In addition, we also get to learn about how these cost behavior patterns are used by managers that will help them to estimate their profits, revenue, sales, and loans etc. It also gives the detail info about cost estimation methods, contribution margin income statement, relevant range and nonlinear costs. Whereas, chapter 6 is completely on CVP analysis (Cost- Volume Profit). It not only just shows the detailed information about CVP analysis, but also how we can do CVP analysis with single product, CVP analysis with multiple products and services. Moreover, we can learn about CVP models on different analysis basis like CVP models for sensitive analysis. It gives the clear picture of using the CVP analysis in different areas which is very important for any organization. How managers use the variable costs for decision making, which is the critical part to understand. As a manger, I can use these concepts in building the cost structure, use for calculating income taxes. These both chapter concepts help in every stage of estimating costs in any organization. Moreover, it can used to calculate break-even point analysis, Target Income, contribution margin during the resource constraints, contribution margin ratio. In order to know how to calculate all those costs, you should how and what is the purpose of using cost behavior pattern which are variable, fixed and mixed costs. Variable costs exle: For exle, if a variable cost has a median cost of $3 per unit for all units, and that we want to grasp the entire amount spent at 5,000, 10,000 and 20,000 units, we will calculate it as follows (Albrecht, 2014). At this level of activity º 5,000 Total costs Average cost per unit 10,000 $15,000 $3 $30,000 $3 20,000 $60,000 $3 Total Variable Costs = V * X V = Variable Costs per Unit X= Units of Product or Activity Fixed Costs: The average cost per unit is that the total amount spent divided by the quantity of number of units of activity. Therefore, the overall amount spent is that the product of the average cost per unit multiplied by the quantity of units of activity (Albrecht, 2014). For exle, if a set cost is $40,000 for all levels of activity, and that we want to understand the solution for overall amount spent at 5,000, 10,000 and 20,000 units. Similarly, because the average per unit at each quantity of activity, we can easily calculate them as shown in the below (Albrecht, 2014). At this level of activity º Total costs Average cost per unit 5,000 10,000 $40,000 $8 $40,000 $4 20,000 $40,000 $2 Mixed Costs: For exle, if a mixed cost equation is $3 per unit plus $20,000, and we want to calculate the total amount spent at 5,000, 10,000 and 20,000 units as well as the average per unit at each quantity of activity, we can calculate the table as shown in the below (Albrecht, 2014). At this level of activity Total costs 5,000 $35,000 10,000 $50,000 20,000 $80,000 Average cost per unit $7 $5 $4 Total Mixed Costs= V * X + F V = Variable costs per unit X = Units of product or activity F = total dollar amount of lump- sum expenditure (Albrecht, 2014) References: Albrecht, D. W. (2014). Cost Accounting – ACCT 362/562 Basic Cost Behavior [PDF]. Retrieved September 27, 2020 from https://opentextbc.ca/principlesofaccountingv2openstax/chapter/identify-and-applybasic-cost-behavior-patterns/ Chapter 5 How Do Organizations Identify Cost Behavior Patterns? (n.d.). Retrieved September 27, 2020, from https://saylordotorg.github.io/text_managerialaccounting/s09-how-do-organizations-identify-.html Chapter 6 How Is Cost-Volume-Profit Analysis Used for Decision Making? (n.d.). Retrieved September 27, 2020, from https://saylordotorg.github.io/text_managerialaccounting/s10-how-is-cost-volume-profit-anal.html Post-3 Chapter 5 #038; 6 Analytical summary Chapter Five discusses the organization’s cost behavior patterns identification. As an organization identifying the typical cost behavior patterns is crucial. There are three basic cost behavior patterns, variables, fixed, and mixed. These three patterns define the cost behavior in the organization. The cost behaviors cannot be more often in the organization since they will lead to unprecedented issues. Some of the cost estimation methods help in estimating the cost behavior patterns in the organization. The cost estimation approaches mostly fix the real cost issues in the organization. In most cases, the organization’s business management teams will do cost analysis and cost behavior analysis. Chapter Six discusses the cost-volume-profit analysis used that helps in improving decision-making in the organization. The cost-volume-profits analysis helps find the break-even point in the sales and the target profits for the organization’s sales. The break-even points and target profit points can be found in multiple products in an organization. The total cost and target profits are calculated with the average contribution margin for the organization’s products to provide the break-even and targetprofit analysis in the organization. The cost structure impacts the cost-volume-profit research in the organization. The fixed cost always defines the costs analysis and limitation in the total costs expected in operating an organization. There are significant changes that companies can have a high proportion of fixed costs to deal with the switching of the operations costs in the organization. As a manager, discuss how you would use or have used the concepts presented in chapters five and six The break-even point in the cost-volume-profit analysis model contributes a lot when there are breakeven sales need to calculate. For exle: As a manager, it is required to calculate the break-even sales volume with fixed costs. As mentioned in Chapter Six The breakeven sales volume = costs (Fixed) / (sales price – variable costs) Sales price – variable costs is always outputs with contribution volume. The breakeven sales formula can be simplified like below: The breakeven sales volume = costs (Fixed) / (contribution margin) Exle values for sales: Break even sales volume = $8000 Fixed costs = $35000 Sales price = $9 Variable costs = $4 Contribution margin = $5 $8000 = $35000 / ($5) Here in this case the contribution margin is $5, which means the selling price for the product is $5. With this contribution margin from the break-even point formula, the organization can set a target sale for the products on sale. This is one of the information that break-even analysis can help the organization in deciding essential aspects. Reference Managerial Accounting. (n.d.). Retrieved September 25, 2020, from https://saylordotorg.github.io/text_managerial-accounting/index.html Sahu, S. (2019). Profit Analysis of a System having a sub-system in Fuzzy Environment. International Journal of Engineering and Computer Science, 8(06), 2466124678.

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