【正文】 。 Company, Inc. Cost Accounting 10 Cost Accounting Ri d in g mo w e r s B i cy cle s W a l kin g mo w e r s$ 1 8 .0M M( $ 3 . 0 M M )( $ 5 . 2 M M )($10)($5)$0$5$ 1 0$ 1 5$ 2 0Product Line Profitability (Millions of Dollars)Bain’s analysis indicated that both bicycles and walking mowers were unprofitable. Middle America then began to investigate whether to exit or fix these two businesses. Return on sales: % (%) (%) Sales: $250MM $100MM $75MM Middle America Manufacturing Actual Profitability bc BOS Copyright169。 1998 Bain amp。 Company, Inc. Cost Accounting 11 Cost Accounting ?Importance of cost allocation ?Client example ?Definitions –direct vs. indirect, fixed vs. variable –breakeven volume ?Exercises –cost allocation –breakeven volume ?Key takeaways Agenda bc BOS Copyright169。 1998 Bain amp。 Company, Inc. Cost Accounting 12 Cost Accounting Definitions: ?Costs that do not vary directly with changes in output ?Costs that vary directly with changes in output ?Costs incurred directly in the production or delivery of a firm’s product or service. These costs can easily be identified with, or assigned to, a particular product ?Costs generally incurred by the firm outside of the production process. These costs cannot easily be identified with, or assigned to, a particular product All costs can be broken down along two dimensions. Fixed Variable Direct Indirect vs. vs. Examples: ?Equipment depreciation ?Rent ?Advertising ?Raw materials ?Production labor ?Delivery costs ?Direct labor ?Dedicated equipment ?Raw materials ?SGamp。A ?Office supplies ?Plant manager Rule of thumb: If a particular cost changes when production increases or decreases, the cost is variable. If a particular cost “goes away” when a product is dropped from the product line, the cost is direct. Types of Costs bc BOS Copyright169。 1998 Bain amp。 Company, Inc. Cost Accounting 13 Cost Accounting ?All costs are variable over a very long time horizon (., for very large increases in volume) – Costs to run and maintain a puter system that tracks product orders are clearly fixed for a small change in volume, such as that associated with a slightly busy month. However, they are variable for a large change in volume, such as that associated with a new plant. ?Most costs are semivariable (., they tend to be added in lumps as volume increases) – Supervisory labor tends to be considered fixed because it is unlikely that additional supervisors would have to be added to handle a small increase, say 10%, in volume. But the workforce can only increase so much before an additional supervisor is needed. – In theory, production labor is variable. However, in many client situations, restraints placed by unions and difficulty in hiring and firing people in response to shortterm volume fluctuations make it, in practice, semivariable. Defining the appropriate time horizon for the analysis is important. A meaningful analysis will isolate the fixed cost and variable ponents of a particular cost Fixed vs. Variable bc BOS Copyright169。 1998 Bain amp。 Company, Inc. Cost Accounting 14 Cost Accounting The following is an illustration of cost behavior for fixed, semivariable, and variable costs: Cost (Dollars) Volume (Units) Variable costs Semivariable costs Fixed costs Fixed vs. Variable Illustration bc BOS Copyright169。 1998 Bain amp。 Company, Inc. Cost Accounting 15 Cost Accounting It is useful to know the following terms when doing cost analysis: Simplified ine statement: Variable Cost Gross Margin Fixed Cost Operating Margin Revenue = Price per Unit x Volume Gross margin is also called “Gross Profit,” or “Contribution Margin” Operating Margin is also called “Operating Profit” Revenue Ine Statement Terms bc BOS Copyright169。 1998 Bain amp。 Company, Inc. Cost Accounting 16 Cost Accounting Breakeven volume is the volume at which the pany covers its fixed costs. At breakeven volume, the operating profit is zero. Volume Contribution margin (., revenue