Using Fixed And Variable Costs Within The Report

Intracompany work was billed at $400 per hour, a rate based on usage estimates for 2001

Management should note that the level of activity was above what had been planned for the month. This led to an expected increase in profits of $1,100. However, the individual items on the report should not receive much management attention. The favorable variance for revenue and the unfavorable variances for expenses are entirely caused by the increase in activity.

In our second assumption, instead of using the cost of goods per cases in 1986, we try to use the percentage it counts in the total expenses which is 50.4% and to find the sales needed to break-even. The detail of the calculation is shown in the answer for questions d. The result is that 95,635, a little bit higher than the estimated sales of 90,000.

Customers must use the internet to fill out an online form to address their complaints or service needs. These forms are processed by employees in your department. Currently the turnaround time on any given form is between four to eight hours. This creates a number of other customer complaints. Project Call Center is designed to reduce this turnaround time by 75% by creating and staffing a call center in Tampa. Building acquisition, building renovations, building fit out, IT system upgrades, and hiring and training of staff are estimated to cost $8.5 million dollars. This $8.5 million dollars can be paid evenly in any two quarters in the next year. In addition, seven new employees will need to be hired at $40,000 burdened labor costs per year to staff the call center. Management of this project could easily be done with the current in-house staff. Most of the work of this project would be outsourced and will have minimal impact on day-to-operations.

For years 1983-1985, additional corporate assessment expense was given. This would lower Polymold’s earnings on their income statement. Another piece of data that was given is research and development expense. Without the CAD/CAM investment, research and development expense is $130,000. This is double to $260,000 without the CAD/CAM investment. This would lower earnings. We are also given the savings that the investment would yield. Without the CAD/CAM investment, there would still be savings – but not as much as with the CAD/CAM investment, which is due to the depreciation of the equipment and tax credits.

Under a traditional system, overhead cost is allocated to an activity based on hours or rates for direct labor or machine usage. However, this approach does not clearly indicate how much overhead cost will be needed in order to complete a job through a particular function. ABC methodology is to be used as an alternative to traditional accounting where a business 's overhead costs (indirect costs such as electrical energy consumption for heating or cooling, or indirect cost associated with marketing) are allocated as a proportion of direct costs, to an activity. This approach is unsatisfactory because there can be cases where two activities could absorb the same direct costs

2.) For each expense that is variable with respect to revenue hours, calculate the cost per revenue hour.

Webmasters.com has developed a powerful new server that would be used for corporations’ Internet activities. It would cost $10 million at Year 0 to buy the equipment necessary to manufacture the server. The project would require net working capital at the beginning of each year in an amount equal to 10% of the year's projected sales; for example, NWC0 = 10%(Sales1). The servers would sell for $24,000 per unit, and Webmasters believes that variable costs would amount to $17,500 per unit. After Year 1, the sales price and variable costs will increase at the inflation rate of 3%. The company’s

3. For each of the individual overhead accounts at Bridgeton, do you believe the given cost is variable, fixed, or something else? Why? (Use information or evidence from the case to support your evaluation, if possible. For most of these costs, there is no single right answer from the case information, so the goal is to come up with a reasonable estimate.)

The $320,000, on the other hand, is a fixed cost associated with the proposed addition.

As opposed to purchasing new equipment, we could opt to maintain the equipment we currently have, which has an estimated service life of 11 years remaining. We could retain all of our claimed Investment Tax Credit for this purchase, which has two years of depreciation left, and would not be required to invest in any new training for our employees. We would recognize $31,000 in depreciation in present value terms, as well as save an estimated $200,000 in training costs and losses due to lower production during the “learning curve”. I estimate these savings to be approximately one month of payroll to include both the time spent on training, and our reduced production as employees learn how to use the new equipment. Additional detail of this option is provided in Appendix B, C, & D.

a. Assuming the most current operational cost levels, what sales must it generate to recoup the above investment?

Ms. Ringer is largely supporting operations through her line of credit versus managing costs. In review of the operating costs, overhead and administration have increased by 8% from 2008-2011 or $116,870. In addition salary dollars continue to increase from 2008-2011 by $111,150 with no efforts to flex. The other expenses are staying steady in proportion to gross revenues. There may be opportunities in these areas however salaries and overhead is the greatest opportunity to scale back costs and contribute to increased net income and ultimately positive cash flows. Flexing salaries and benefit to 44% of gross revenue and reducing overhead and expenses to 10% of gross revenue is recommended for Ms. Ringer to increase net income to $152,956 and equity to $240,214 (exhibit Operating Statements-2012 proforma).

3 variable costs indentified, they are power, operations, material. They are proportional to the revenue intake.

(This measurement was an overall company wide cost savings in all departments.) Another $1 million was saved in labor costs as a result of using electronic forms for the 401k plans, employee stock purchase plan, and the stock options plan. To implement the plan a total of twelve servers were used (hardware cost being about $300,000). Developmental cost over two years was approximately $8 million. Ongoing technology support runs $765,000 annually. By demonstrating this in his book he proves that by implementing a paperless society the cost effectiveness out weights the initial cost of establishing the paperless office.