【正文】 on –breakeven volume ?Key takeaways Agenda bc BOS Copyright169。 Company, Inc. Cost Accounting 26 Cost Accounting A dean of a business school is considering starting an executive program. She estimates the revenues and costs as follows: Question: How many students does the program need to break even? Costs: Revenue: Advertising Classroom rental (Each classroom can acmodate 15 students) Program administration Program director’s salary Faculty salaries (The program will be staffed with 1 faculty member for every 5 students) Guest lecturer Room and board per student Text and supplies per student Tuition per student $3,000 $13,500 $500 $30,000 per classroom $15,000 $20,000 $20,000 per faculty member $12,000 $3,200 Breakeven Exercise Background bc BOS Copyright169。 1998 Bain amp。 Company, Inc. Cost Accounting 19 Cost Accounting ?All products are made using the same equipment and machinery ?Plant supervisors oversee production of all three products ?Equipment capacity exists to increase production by 50% ?Sales people sell all three products ?Sales people are paid a base salary, plus a mission which is a percentage of the selling price ?Most advertising is product specific ?The pany uses a trucking pany to deliver products to customers (costs are based on the length of trip and weight) Maple Leaf Company wants to allocate costs to the three products it makes and sells. Cost Allocation Exercise Background bc BOS Copyright169。 Company, Inc. Cost Accounting 15 Cost Accounting It is useful to know the following terms when doing cost analysis: Simplified ine statement: Variable Cost Gross Margin Fixed Cost Operating Margin Revenue = Price per Unit x Volume Gross margin is also called “Gross Profit,” or “Contribution Margin” Operating Margin is also called “Operating Profit” Revenue Ine Statement Terms bc BOS Copyright169。 1998 Bain amp。 1998 Bain amp。 1998 Bain amp。Author: Collins Qian Reviewer: Bob Armacost bc Cost Accounting March 1998 Copyright169。 Company, Inc. Cost Accounting 4 Cost Accounting ?Which products are profitable? ?What is the breakeven volume by product? ?Which products require cost reduction efforts? ?How should we price our products? ?Which customer segments are most profitable? It is critical to have accurate and plete cost data to make sound strategic and tactical management decisions. Why Allocate Costs? bc BOS Copyright169。 Company, Inc. Cost Accounting 8 Cost Accounting W al k i n g m ow e rsB ic y c l e sR id i n g m o w e r sW a l k i n g m o w e r sB ic y c l e sR id i n g m o w e r sO r ig in a l a l l o c a tio n R e v i s e d a l l o c a tio n$ 8 . 0 M M $ 8 . 0 M M$0$2$4$6$8$ 1 0Cost (Millions of Dollars)After a thorough evaluation, the Bain team found that $ in costs had been allocated incorrectly among the three products. Middle America Manufacturing Cost Allocation bc BOS Copyright169。 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。 1998 Bain amp。 1998 Bain amp。 Company, Inc. Cost Accounting 23 Cost Accounting Cost Components Fixed vs. Variable Direct vs. Indirect Office supplies Fixed, because it is unlikely that additional office supplies will be needed to handle 10% increase in volume Indirect, because the office supplies are used to support all three products Goo