Get Full Essay Get access to this section to get all help you need with your essay and educational issues. Colorscope Case Analysis Essay Sample Executive Summary The current costing method that is being used is completely misrepresenting customer profitability and costs of rework completed.
Capital Budgeting Techniques Cost-Volume-Profit Analysis Cost-volume-profit CVP analysis is used to determine how changes in costs and volume affect a company's operating income and net income. In performing this analysis, there are several assumptions made, including: Sales price per unit is constant.
Variable costs per unit are constant. Total fixed costs are constant. Everything produced is sold. Costs are only affected because activity changes. If a company sells more than one product, they are sold in the same mix.
CVP analysis requires that all the company's costs, including manufacturing, selling, and administrative costs, be identified as variable or fixed. Contribution margin and contribution margin ratio Key calculations when using CVP analysis are the contribution margin and the contribution margin ratio.
The contribution margin represents the amount of income or profit the company made before deducting its fixed costs. Said another way, it is the amount of sales dollars available to cover or contribute to fixed costs.
When calculated as a ratio, it is the percent of sales dollars available to cover fixed costs.
Once fixed costs are covered, the next dollar of sales results in the company having income. The contribution margin is sales revenue minus all variable costs.
It may be calculated using dollars or on a per unit basis. If The Three M's, Inc. It can be calculated using either the contribution margin in dollars or the contribution margin per unit. To calculate the contribution margin ratio, the contribution margin is divided by the sales or revenues amount.
In other words, the point where sales revenue equals total variable costs plus total fixed costs, and contribution margin equals fixed costs.
This income statement format is known as the contribution margin income statement and is used for internal reporting only. Similarly, the fixed costs represent total manufacturing, selling, and administrative fixed costs. In this equation, the variable costs are stated as a percent of sales.
This also works in reverse. Targeted income CVP analysis is also used when a company is trying to determine what level of sales is necessary to reach a specific level of income, also called targeted income.
To calculate the required sales level, the targeted income is added to fixed costs, and the total is divided by the contribution margin ratio to determine required sales dollars, or the total is divided by contribution margin per unit to determine the required sales level in units.
Remember that there are additional variable costs incurred every time an additional unit is sold, and these costs reduce the extra revenues when calculating income.
This calculation of targeted income assumes it is being calculated for a division as it ignores income taxes. If a targeted net income income after taxes is being calculated, then income taxes would also be added to fixed costs along with targeted net income.
A summarized contribution margin income statement can be used to prove these calculations.Colorscope Case Analysis Case of Colorscope Inc By Patrick Nedved Vanessa Osborne Danielle McCarthy Table of Contents Executive Summary The current costing method that is being used is completely misrepresenting customer profitability and costs of rework completed Colorscope exhibits a flawed pricing strategy, inaccurate financial reports .
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Sesuai dengan teori Customer Profit Analysis yang menyatakan bahwa perusahaan harus memperhatikan pelanggan yang memberikan keuntungan bagi perusahaan.
. Pada table dibawah ini dapat dilihat beberapa pekerjaan (job #) yang dilakukan Colorscope yang memang memberikan keuntungan dan beberapa pekerjaan yang . Case: Colorscope, Inc. Page 1 so this is an illustration of actual costing Q3) How many overhead cost pools are appropriate for Colorscope?
CVP analysis estimates how much changes in a company's costs, both fixed and variable, sales volume, and price, affect a company's profit. This is a very powerful tool in managerial finance and accounting.
Calculate profitability of job by allocating costs to that job using the cost driver rates that you estimated. It might be useful to diagram this system before you start calculating the cost pools and cost driver rates.