0
buyer has placed an order with a supplier for 100 pieces at a per-unit price of $281 and has collected
the following cost data:
Material $100
Direct labor $50 (5 hours at $10 per hour)
Overhead $75 (150% of direct labor)
Total costs $225
Profit (25%) $56
Total per unit $281
The buyer now wants to place an order for an additional 700 pieces.
What else can I help you with?
Which costs decrease in activity within the relevant range?
Within the relevant range, variable costs decrease per unit as production volume increases, due to the spreading of fixed costs over a larger number of units. Additionally, economies of scale may lead to lower average costs as production increases, often resulting in decreased costs for materials or labor per unit. However, total fixed costs remain constant within this range, since they do not change with the level of activity.
Why are costs important?
They reduce profit.
How does production volume affect break-even analysis?
Production volume directly impacts break-even analysis by determining the total fixed and variable costs associated with producing goods. As production volume increases, the fixed costs are spread over more units, reducing the break-even point. Conversely, if production volume decreases, the fixed costs are allocated to fewer units, raising the break-even point. Therefore, higher production volumes can lead to a lower break-even threshold, making it easier for a business to become profitable.
In order to reduce labor costs what might a company do?
some companies have outsourced jobs to Another Country as they can reduce labor costs that way.
What is unabsorbed costs?
Unabsorbed costs refer to expenses that cannot be allocated to specific products or services because they exceed the total production capacity or sales volume. These costs typically arise in manufacturing settings where fixed costs, such as rent or salaries, are not fully covered by the revenue generated from sales. As a result, they remain "unabsorbed" and can impact overall profitability. Companies may seek to reduce unabsorbed costs by improving efficiency or increasing sales.
Why are business technologies good?
capital investments are used to reduce the cost of production, which lowers the costs of goods, which increases customer volume and demand
What is economic of sales?
Economies of scale are factors which cause the average cost of production to decrease as the volume of its output is increased. It has two types: the internal and external factors.
What is a scale based strategy?
A scale-based strategy involves increasing production or expanding operations to reduce costs and increase efficiency. This approach relies on economies of scale to achieve lower unit costs as the volume of production increases. By maximizing output and taking advantage of bulk discounts, companies can improve their competitiveness and profitability.
What causes the break even point to increase or decrease?
The break-even point increases when fixed costs increase or selling price decreases. It decreases when fixed costs decrease or selling price increases. Changes in variable costs or sales volume can also impact the break-even point.
Is variable cost independent of volume and do they remain constant?
Variable costs are not independent of volume; they fluctuate directly with the level of production or sales. As production increases, variable costs rise because they are incurred for each unit produced, such as materials and labor. However, while the total variable costs change with volume, the cost per unit remains constant. Thus, variable costs are volume-dependent but consistent on a per-unit basis.
Why do US companies outsource jobs?
To reduce labor costs
What effect does an increase in volume have on A UNIT FIXED COSTS B UNIT VARIABLE COSTS C Total Fixed Costs D Total Variable Costs?
A unit fixed cost decreases as volume increases, since fixed costs remain constant while being spread over more units. Unit variable costs remain unchanged regardless of volume, as they are dependent on the cost per unit produced. Total fixed costs stay the same, as they do not vary with production levels. Total variable costs increase with volume, as they are directly related to the number of units produced.
When considering how changes in volume affect total fixed costs it is important to consider?
When considering how changes in volume affect total fixed costs, it is important to keep in mind that fixed costs remain constant regardless of the level of production or sales. This means that as volume increases, fixed costs per unit decrease, but total fixed costs remain the same. It is essential to understand this concept for accurate cost analysis and decision-making.
What are the reasons behind the Affordable Care Act premium increases and how can individuals navigate these rising costs?
The Affordable Care Act premium increases are mainly due to factors like rising healthcare costs, increased demand for services, and uncertainty in the insurance market. To navigate these rising costs, individuals can compare different health insurance plans, consider subsidies or tax credits, explore health savings accounts, and prioritize preventive care to reduce long-term expenses.
What are the key determinants of operating leverage?
The key determinants of operating leverage include the proportion of fixed versus variable costs in a company’s cost structure, the sales volume, and the sales price. A higher proportion of fixed costs relative to variable costs increases operating leverage, which amplifies the impact of sales fluctuations on profits. Additionally, the degree to which sales volume changes can affect operating leverage; as sales rise, the fixed costs are spread over more units, enhancing profitability. Conversely, a decline in sales can significantly reduce profits due to the fixed costs remaining constant.
If the volume goes up what happens to the fixed cost and profit?
If the volume goes up, fixed costs remain constant while profit usually increases. This is due to the fixed costs being spread out over a larger number of units, leading to an increase in profit as long as revenue exceeds variable costs.
Does costs may behave in a linear or nonlinear way?
Costs can behave either in a linear or nonlinear manner depending on various factors. Linear costs increase at a constant rate with changes in production or activity levels, while nonlinear costs may exhibit variable rates of increase due to economies of scale, fixed costs, or variable costs that change with volume. For example, bulk purchasing can reduce per-unit costs, leading to a nonlinear cost structure. Understanding the nature of costs is crucial for effective budgeting and financial planning.
