1- (A) - Fixed manufacturing overhead costs are defined as a product cost and period costs under absorption costing and variable costing respectively. This is the only difference between these two costing methods.
(B) - The actual difference between the cost of goods sold and sales gives the value of gross profit (gross margin). Fixed and variable manufacturing costs are part of the cost of goods sold. On the other hand, contribution margin is determined by sales amount less of variable expenses such as variable operating expenses and variable cost of goods sold. Fixed costs are not considered in the calculation of contribution margin.
2- (A) - Currently, all overhead is combined into a single cost pool by Templeton, which is using a cost driver is to be applied to products. This method commingles different cost relationships thus resulting into calculation of average cost. The ABC method create cost pools for every company’s individual activity then select a cost driver for each activity—only driver that is highly correlated to the activity's consumption rate. In comparison with current procedures for accounting, this method increases the cost drivers and number of cost pools.The abandoning of the average costing methods certainly reduces cost distortion and improves cost determination amongst the company’s products. In particular, this approach takes into consideration the use of no unit-level activities and product diversity.
3- (A) Profit is expressed as a basic function of revenues and expenses—and Haxton appears on both elements. Small order sizes, high discounts, and low prices. In addition, due to the required numerous sales calls need for specialized shipping and handling, and customer that pays slow, Bravo leads to high working costs.
(B.) Since it is hard to extend favorable terms for a long time, Haxton should work closely with Bravo as a cost-cutting measure. Possible areas for improvement includes increase in order size, needs for specialized shipping and handling, acceleration of amount due, and a reduction in sales visits. It is in order to consider elimination of discounts and price hikes if Haxton’s effort is unsuccessful.
4- A committed cost is a special example of a fixed amount that arises out of use of facilities, company’s ownerships and its organizational structure. Examples of committed costs include salaries of the management team, rent, and property taxes. Discretionary cost is another example of fixed cost that stems from the managers’ decision to a certain amount of a company’s money for a given purpose. Promotion, training, advertising, and contributions to charity work are good examples of such costs.
The only distinction is that unlike discretionary costs, only major decisions that have long term implications can change committed costs. On the other hand, because they can be changed in the short run discretionary costs can be used as a cost cutting targets in case the company faces financial difficulties.
- (A) - Typically, in a flexible manufacturing environment, the variable manufacturing costs will decrease while the total fixed costs will increase. Normally in addition to automation, lease, depreciation and maintenance costs accounts for this change. Due to this, the break-even point increases.
(B)- There are possibilities of inventory drop-off the first time a company changes to JIT. Nonetheless, an ongoing JIT user will certainly not violate the assumption of none significant change in the company’s inventories. There will be insignificant accompanying changes as compared to sales and volume of production.
