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Bilston case study - Essay Example

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REPORT TO: Joe Major, President : Bilston Fasteners Company. From: Subject: Variable Cost Assignment Costing is an important part of the decision making activities of management. The research focuses on the determining the fixed and variable portions of organisations’ financial reports…
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Download file to see previous pages . In addition, the company must characterized some of the costs as fixed costs. The fixed cost are electricity, general and administrative, rent, depreciation expense, interest expense, and other factory costs. The company must some fo the costs as fixed costs. The variable cost are labor cost, raw materials, and repairs (Abele 2008). II. The standard contribution marging includes the variable costs and the fixed costs elements. Table 1 shows that the contribution margin for the wood screws is .0117. This is arrived at by deducting the variable costs from the revenues. The variable costs are the labour cost, raw materials costs, and the repairs costs. Table 2 shows that the contribution margin for Self Taffers is 0.0251. This is arrived at by deducting the variable costs from the revenues. The variable costs are the labour cost, raw materials costs, and the repairs costs. Table 3 shows that the contribution margin for the wood screws is .0118. This is arrived at by deducting the variable costs from the revenues. The variable costs are the labour cost, raw materials costs, and the repairs costs. Display of the company’s Profit and loss account for 2009 in contribution format. Table 4 shows that company’s profits and loss account for 2009 for its wood screws products. The company generated profit of 295 for the said year. Table 5 shows the revenues of its self taffers products for the year 2009. Table 6 shows the company’s Nuts and Bolts division’s profits and loss account for 2009 for its wood screws products. The company generated a loss of (219) for the said year. Table 6 shows the revenues of its self taffers products for the year 2009. The above discussions show that the company did not fare well in the two remaining product lines. On the other hand, the company did well in one of the three products scrutinized (Besley, 2008). III. Discussion of the company’s proposal to drop one of its failing products. Starting in January 2010 (based on 2009 figures). The company should not drop the nuts and bolts in January 2010 if the basis for the dropping is the 2009 annual income statement result. Continuing with production of the nuts and bolts generates a lesser loss of only 219.00 However, dropping the nuts and bolts section of the company’s production department would force the company to continue paying the fixed expenses. The fixed expenses are higher than the net loss of only 219.00 (Dubrin, 2008). IV. Discussion on whether the company should reduce prices of the wood screws to ?2.25 in the second half of 2010. The company should drop the price from to the lower 2.25. The lower price will generate a higher volume of revenues from 750 units to the higher 1,000 units. In addition the results of operations at 2.25 is higher than the results of operations for the prior higher selling price of 2.45 (Khan, 2006). V. The company’s total company profit forecast for second half 2010 assuming the price of woodscrews is dropped to ?2.25, again taking account of the variances. Table 7 shows that company’s woodscrews products will be sold at a lower selling price of ?2.25. The table 7 financial statement shows that reducing the price from 2.45 to 2.25 is a good management decision. The reduction in the selling prices generates an in crease in the revenues by 250,000 units. The results of operations for the 2.25 price is better than the result sof operations pegged at 2.45 price (Moyer, 2009). IV. Long term prospects for Bilston.The fixed ...Download file to see next pagesRead More
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