1)List the four major reasons that companies allocate costs. 2)what are avoidabl
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1)List the four major reasons that companies allocate costs. 2)what are avoidable costs? which costs are usually avoidable in a make-or-buy decision? 3)Explain why cost plus pricing is "circular". 4)What is the most significant difference between the net present value and internal rate of return methods and the payback period and accounting rate of return methods? 5) what are the three major financial statements and what information does each contain? 6)what are the main purposes of preparing a cash receipts and disbursements budget? 7) The production cost report may contain as many as four cost per equivalent unit calculation. What are the components of total cost for which the cost per equivalent unit may be calculated? 8) Briefly explain the concepts of JIT and TQM. Could a company use both ideas, or are they mutually exclusive? 1)List the four major reasons that companies allocate costs. 2)what are avoidable costs? which costs are usually avoidable in a make-or-buy decision? 3)Explain why cost plus pricing is "circular". 4)What is the most significant difference between the net present value and internal rate of return methods and the payback period and accounting rate of return methods? 5) what are the three major financial statements and what information does each contain? 6)what are the main purposes of preparing a cash receipts and disbursements budget? 7) The production cost report may contain as many as four cost per equivalent unit calculation. What are the components of total cost for which the cost per equivalent unit may be calculated? 8) Briefly explain the concepts of JIT and TQM. Could a company use both ideas, or are they mutually exclusive?Explanation / Answer
1.....Companies allocate costs so that all elements that are part of that cost share the incurred costs. It is like spreading the costs amongst those that use it. Companies allocate costs merely to assign responsibility of those costs to either several departments within that company or to just one department. For example, think of a multi-divisional business that has to provide a security service to protect its building, all divisions in that business will share the costs of the security service.............. 2.....Definition of 'Avoidable Cost' An expense that will not be incurred if a particular activity is not performed. Avoidable cost refers to variable costs that can be avoided, unlike most fixed costs, which are typically unavoidable.While avoidable costs are often viewed as negative costs, they may be necessary to achieve certain goals or thresholds. Avoidable costs are expenses that can be avoided if a decision is made to alter the course of a project or business. For example, a manufacturer with many product lines can drop one of the lines, thereby eliminating associated expenses such as labor and materials. Corporations looking for methods to reduce or eliminate expenses often analyze avoidable costs associated with underperforming or non-profitable product lines.................... 3...................Cost plus pricing is "circular" for manufacturing firms. They estimate demand to determine fixed manufacturing costs per unit, so that they can mark up cost to obtain a price. However the price affects the quantity demanded, the higher the price the lower the demand. The fewer the units purchased the cost per unit will go up, increased the cost plus price, lowering the demand further................ 4.............Both of these measurements are primarily used in capital budgeting, the process by which companies determine whether a new investment or expansion opportunity is worthwhile. Given an investment opportunity, a firm needs to decide whether undertaking the investment will generate net economic profits or losses for the company. To do this, the firm estimates the future cash flows of the project and discounts them into present value amounts using a discount rate that represents the project's cost of capital and its risk. Next, all of the investment's future positive cash flows are reduced into one present value number. Subtracting this number from the initial cash outlay required for the investment provides the net present value (NPV) of the investment. Let's illustrate with an example: suppose JKL Media Company wants to buy a small publishing company. JKL determines that the future cash flows generated by the publisher, when discounted at a 12% annual rate, yields a present value of $23.5 million. If the publishing company's owner is willing to sell for $20 million, then the NPV of the project would be $3.5 million ($23.5 - $20 = $3.5). The $3.5 million dollar NPV represents the intrinsic value that will be added to JKL Media if it undertakes this acquisition. So, JKL Media's project has a positive NPV, but from a business perspective, the firm should also know what rate of return will be generated by this investment. To do this, the firm would simply recalculate the NPV equation, this time setting the NPV factor to zero, and solve for the now unknown discount rate. The rate that is produced by the solution is the project's internal rate of return (IRR). For this example, the project's IRR could, depending on the timing and proportions of cash flow distributions, be equal to 17.15%. Thus, JKL Media, given its projected cash flows, has a project with a 17.15% return. If there were a project that JKL could undertake with a higher IRR, it would probably pursue the higher-yielding project instead. Thus, you can see that the usefulness of the IRR measurement lies in its ability to represent any investment opportunity's return and to compare it with other possible investments. ............... 5...................Balance Sheet,Income Statement,balance sheet............. 6......................In planning, management must set specific odjectives for each section of the entity. Plans shiuld be drawn up with a view to both the short and the long term, and must be based on forecastes regarding demand, sopply and expected techonological improvements. Therfore, a cash budget shows the expected flow of cash. Cash flow is crucial to any entity and therefore the cash budget is very important to any business entity as it involves planning, control, coordination, ect..................... 7...............1. Prime Cost Prime cost consists of costs of direct materials, direct labors and direct expenses. It is also known as basic, first or flat cost. 2. Factory Cost Factory cost comprises prime cost and, in addition, works or factory overheads that include costs of indirect materials, indirect labors and indirect expenses incurred in a factory. It is also known as works cost, production or manufacturing cost. 3. Office Cost Office cost is the sum of office and administration overheads and factory cost. This is also termed as administration cost or the total cost of production. 4. Total Cost Selling and distribution overheads are added to the total cost of production to get total cost or the cost of sales............... 8..............Definition of 'Just In Time - JIT' An inventory strategy companies employ to increase efficiency and decrease waste by receiving goods only as they are needed in the production process, thereby reducing inventory costs. This method requires that producers are able to accurately forecast demand A good example would be a car manufacturer that operates with very low inventory levels, relying on their supply chain to deliver the parts they need to build cars. The parts needed to manufacture the cars do not arrive before nor after they are needed, rather they arrive just as they are needed. This inventory supply system represents a shift away from the older "just in case" strategy where producers carried large inventories in case higher demand had to be met................ TQM is based on the premise that the quality of products and processes is the responsibility of everyone involved with the creation or consumption of the products or services offered by an organization, requiring the involvement of management, workforce, suppliers, and customers, to meet or exceed customer expectations
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