Question

Cost Behavior Major Concept Assmt #1 Explain and give a unique example the following concepts of cost behaviors: • Cost drivers Fixed cost and Variable Costs • CVP Analysis Write in complete sentences and pay close attention to grammar Please make sure to clearly explain the concepts as if you were teaching and explaining to another student, that has no background on these concepts. Also, make sure to use a unique example. Take this example from your own situation, either at work or at home. All these concepts can be applied to our personal lives, even though they are business concepts. Do not use any example from any text or any video. I am well versed in videos and text literature on these subjects. The purpose of this assignment is to make sure you know these concepts and how they are used businesses, and how they can be applied to us, as an individual Cost Behavior BE Analysis Assmt #2 Explain the concept of break even analysis. Place yourself in a management role. Create an example that you would calculate a break even point and what it means. This assignment requires you to use numbers and explanation of these numbers. The example should be unique and not used from any other text, video, or other resource. You create the example

Answer 1

[I]

Cost is a monetary value of all sacrifices made to achieve an objecive.These sacrifices are termed as elements of cost.

Regardless of all the Cot management techniques, we have only three elements of Cost

1.Materials = Direct Material + Indirect Material

2.Labor = Direct Labor + Indirect Labor

3.Expenses = Direct Expenses + Indirect Expenses

All Direct costs are collectively named Prime costs, while all indirect costs are termed as overheads.

There is no issue with Prime costs as they could be directly used for measurement of cost of a cost object, whilst in case of Overheads for a longest time, Overheads are ascertained to the cost object mostly on the basis of some logical basis, mostly with respect to Units produced or Labor hours worked or Machine hours Operated, either to the factory as a whole or first apportioned to various departments and later on reapportioned to the cost object.That being said, Activity based costing was invented to make good the above shortcomings in the costing system as it was not commensurate with the present day dynamic commercial environment.

(1)Cost Drivers:

Cost Drivers are popularised by the concept of Activity based Costing, based on which the cost of a cost object is ascertained on the basis of the activities performed to complete the cost object and the drivers which actually make an impact on those activities are called Cost Drivers.

Cost Object is a anything for which cost is being measured.

These Cost Drivers are of two types, catagorized as Resource Cost Drivers and Activity Cost Drivers.

Resource Cost Drivers measure the quantity of resource consumed by the activity.It is used to assign the cost of resource to an activity.

Whilst Activity Cost Drivers measure the intensity and of demand alongside it's frequency placed on activity by cost objects, used to assign activity costs to cost objects.

Examples: For research and development function, number of research projects or personnel hours on the project etc., could be the cost drivers.

For Design of product,Number of products in design,Number of engineering hours could be the cost drivers.

So Cost drivers change from case to case.

(2) Fixed Cost and Variable cost

One thing you need to pay heed for, is that every entity is different and every entity performs at different capacity levels given its condition in the market at any given point of time.

Fixed costs are costs which remain same irrespective of the level of output, these are also known as period costs , as they are dependent on the period passed and not the number of units produced and sold.

Examples to name a feew would be rent, Insurance, salaries, deoreciation etc.,,

Variable cost is the cost that varies with a change in level of output, due to this feature of them, they are also termed as product costs.

Examples include Prime costs alongside some Overheads which satisfies the nature of variable cost.

To take another example the timber logs used, fabric, adhesive, nuts, bolts, labor directly associated with making of sofa etc., would be the variable costs for a carperenter who makes Timberwood sofas .

(3) CVP analysis

It is one of the parts of Cost management technique, popularly used by managers for decision making called as Marginal Costing.

Basically CVP anlaysis is used to determine how the costs and profits behave at different volumes of output.

Variable Cost Fixed Cost

Production	Per unit	Total	Per unit	Total
1.Increase	Constant	Increases	Decreases	Constant
2.Decrease	Constant	Decreases	Increases	Constant

Based on marginal Costing technique,

Total Fixed Cost is constant alongside Variable cost per unit, for the reasons given in (2) above.

[II]

BEP analysis is that level of sales where you earn just enough to recover your fiixed cost, meaning it is that level of sales where the entity is in a position of recovering its losses, which infact makes it to be in a position of no profit and no loss.

BEP also says that the total sales revenue and total costs are equal at that level of sales.

Lets say that the you are a manufacturer involved in production of roller ball pens.

And Say that Selling price per unit of roller ball pen = $10; Variable cost per unit of roller ball pen = $6

Fixed Cost = $25000

Let number of units at BEP be X

Sales = Variable cost + Fixed Cost

10X = 6X+25000

4X = 25000

X=6250 units

So, the entity has to be able to sell 6250 units to get to BEP later on they would earn profits from 6251st unit.