Final Exercise 11.5: Fixed Versus Variable Cost Behavior

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Evaluate the cost behavior of Nasenko Company's expenses based on the data provided for March and April, and analyze the fixed versus variable nature of these costs. Additionally, calculate the break-even point for Agassi Corporation's product sales, determine the sales volume needed to achieve a desired profit for Lindo Company, and interpret the importance of effective data gather processes in enterprise performance management.

Paper For Above instruction

Understanding Cost Behavior: Analysis of Nasenko Company’s Fixed and Variable Costs

Cost behavior analysis is fundamental in managerial accounting as it influences budgeting, financial forecasting, and decision-making. Nasenko Company’s data for two months offers insights into how certain costs respond to changes in production levels. In examining the data for March and April, the rent expense remains constant at $1,800, while the utility expense varies from $600 in March to $1,200 in April. This suggests that rent is a fixed cost, staying constant regardless of production volume, whereas utilities are more variable, increasing with higher usage possibly due to increased production activity.

Calculating the per-unit cost for rent and utilities in both months underscores this distinction. In March, with a certain number of units produced, the rent per unit is calculated by dividing the total rent by the units produced; similarly, utility cost per unit is obtained by dividing total utility costs by units produced. Since units produced are not provided explicitly, typical assumptions would be made for illustrative purposes or by deriving rates assuming consistent growth or static units. For example, if 100 units are produced, rent cost per unit would be $18, and utilities would be $6, indicating fixed costs spread over the units and variable costs that fluctuate with usage.

Identifying fixed and variable costs is crucial for management to understand which expenses can be controlled in the short term and which are constant regardless of activity levels. Fixed costs like rent and salaries impede flexibility but provide stability in expense planning. Variable costs such as utilities and materials fluctuate with production and can be managed by adjusting production levels. Recognizing these behaviors assists in break-even analysis, pricing strategies, and profit planning.

Break-Even Analysis for Agassi Corporation

Agassi Corporation’s selling price per product is $90, with a variable cost of $60 per unit and annual fixed costs of $450,000. The break-even point is calculated where total revenues equal total costs, meaning no net profit or loss.

In units, the break-even volume is computed as Fixed Costs divided by (Selling Price - Variable Cost), leading to:

Break-even units = $450,000 / ($90 - $60) = 15,000 units.

In dollars, the break-even sales = 15,000 units * $90 = $1,350,000.

This analysis shows the minimum sales volume required to cover all costs, serving as a benchmark for sales targets and assessing profitability risk.

Lindo Company’s Profit Planning

With fixed costs of $80,000, variable costs of $40 per unit, selling price of $64, and a target profit of $40,000, the required sales volume in units and dollars can be determined using the contribution margin approach.

The contribution margin per unit = $64 - $40 = $24.

Desired profit plus fixed costs = $80,000 + $40,000 = $120,000.

Sales volume in units = $120,000 / $24 = 5,000 units.

In sales dollars, this equates to 5,000 units * $64 = $320,000.

This targeted sales volume ensures that Lindo Company not only covers all costs but also achieves its profit goal, guiding sales and marketing strategies accordingly.

Significance of Data Gathering in Enterprise Performance Management

An effective enterprise performance management (EPM) system relies heavily on accurate, timely, and comprehensive data collection processes. The gather process, as discussed by Dimon (2013), involves collecting actuals from transactional systems, cleaning, consolidating, and analyzing data to produce meaningful insights. Efficient gather processes enhance decision-making by providing stakeholders with transparent and reliable information, reducing reaction times to business challenges.

The architecture detailed in Dimon’s model illustrates layers such as transactional systems, data warehouses, data marts, and reporting tools. Utilizing extract, transform, load (ETL) techniques ensures data integrity and readiness for analysis. Proper data governance and process standardization are essential for maintaining data quality across dimensions like accuracy, timeliness, completeness, relevance, and security (Dumm et al., 2019).

Organizations that optimize their gather processes gain competitive advantages through better forecasting, risk mitigation, and strategic planning. When stakeholders understand how data are collected, processed, and interpreted, confidence increases, leading to more Data-Driven Decision Making (Brynjolfsson & McAfee, 2014). Automation in data collection and integration further streamlines operations, allowing analysts and managers to focus on value-added analysis rather than data manipulation.

In conclusion, analyzing Nasenko’s costs provides insight into fixed versus variable behavior, fundamental for operational and financial decisions. Break-even and profit calculations for Agassi and Lindo companies exemplify practical applications of cost-volume-profit analysis. Finally, understanding and optimizing gather processes underpin reliable enterprise performance management, empowering organizations to respond swiftly and confidently in dynamic markets.

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