WordSpanish 1s EECS Corporate Business Financial Analyst

1200 Wordspart 1as Eecs Corporate Business Financial Analyst You Wil

Part 1: As an EECS corporate business financial analyst, it is essential to understand the different types of costs that the company incurs, namely variable, fixed, and mixed costs. Analyzing EEC's journal activity provides insight into these costs and their behavior concerning changes in sales volume.

Variable costs are expenses that fluctuate directly with the level of production or sales volume. These include costs like raw materials, direct labor, and commissions, which increase or decrease proportionally with output. Fixed costs remain constant regardless of sales volume within a relevant range, including expenses such as rent, salaries of permanent staff, and depreciation. Mixed costs, also called semi-variable costs, contain elements of both variable and fixed costs; examples include utility costs or certain maintenance expenses, which have a base fixed component plus a variable portion depending on usage or activity level.

By reviewing EEC's journal activity, we can identify specific accounts that correspond to each cost type. For instance, a journal entry recording raw material purchases would be classified as variable, while monthly rent payments would represent fixed costs. Utility expenses that vary with usage are mixed costs. Accurately categorizing these costs aids in understanding how they behave with changes in sales volume.

Regarding the impact of changes in sales volume:

• When sales volume increases:
• Unit fixed cost remains unchanged since fixed costs are spread over a larger number of units.
• Unit variable cost stays constant if variable costs per unit are stable; total variable costs increase proportionally with sales volume.
• Total fixed costs remain constant in total amount.
• Total variable costs increase proportionally as more units are sold.
• When sales volume decreases:
• Unit fixed cost increases because fixed costs are spread over fewer units.
• Unit variable cost remains unchanged.
• Total fixed costs stay the same.
• Total variable costs decrease in proportion to the fewer units sold.

Part 2: Costing Concept Analysis - Activity-Based Costing

Activity-Based Costing (ABC) is a costing method that assigns overhead and indirect costs to specific activities, which are then linked to products or services based on their usage of those activities. Unlike traditional costing methods that allocate costs uniformly, ABC provides a more accurate analysis of the resources consumed by different products or departments, facilitating precise cost management and strategic decision-making.

In EEC, ABC can be used to identify the true cost of manufacturing various products or delivering different services. For example, instead of spreading manufacturing overhead evenly across all products, ABC would analyze activities such as machine setup, quality control, and packaging to determine the actual costs incurred by each product line. This method helps EEC understand the profitability of each product better and identify areas where efficiency can be improved.

ABC can also be employed during product development to evaluate the costs associated with new product features or variations, enabling EEC to make informed decisions about pricing and resource allocation. Additionally, ABC supports cost reduction initiatives by highlighting high-cost activities that do not add value to the customer, thereby guiding process improvements or automation efforts.

Advantages of Activity-Based Costing include improved accuracy in product costing, better insights into resource utilization, and enhanced decision-making capabilities. By understanding the true costs associated with different activities, EEC can optimize pricing strategies, improve profit margins, and implement targeted cost control measures.

However, ABC also has disadvantages. It can be complex and time-consuming to implement, requiring detailed data collection and analysis. Smaller organizations or those with simple manufacturing processes may find traditional costing methods more practical. Additionally, ABC’s focus on detailed activity analysis can lead to increased administrative costs, which might outweigh the benefits in certain contexts.

Overall, for EEC, adopting Activity-Based Costing can lead to more precise cost management and strategic insights, especially in competitive markets where understanding the true profitability of products and services is crucial. Proper implementation should balance the benefits of detailed cost analysis against the costs and effort involved in maintaining the system.

References

• Drury, C. (2018). Management and Cost Accounting (10th ed.). Cengage Learning.
• Horngren, C. T., Datar, S. M., & Rajan, M. (2015). Cost Accounting: A Managerial Emphasis (15th ed.). Pearson.
• Kaplan, R. S., & Anderson, S. R. (2004). Time-driven Activity-Based Costing. Harvard Business Review, 82(11), 131-138.
• Cooper, R., & Kaplan, R. S. (1988). Measure Costs Right: Make the Right Decisions. Harvard Business Review.
• Garrison, R. H., Noreen, E. W., & Brewer, P. C. (2018). Managerial Accounting (16th ed.). McGraw-Hill Education.
• Ingelhart, M. R. (2015). Activity-Based Costing for Manufacturing. Journal of Cost Management, 29(2), 12-20.
• Kaplan, R., & Anderson, S. (2007). Time-driven Activity-based Costing. Harvard Business School Publishing.
• Anthony, R. N., & Govindarajan, V. (2007). Management Control Systems (12th ed.). McGraw-Hill Education.
• Hines, T., & Rich, J. (2018). Activity-Based Costing and Cost Management. Journal of Accounting & Organizational Change, 14(2), 147-165.
• Burns, R. B. (2017). Business Costing and Pricing Analytics. Routledge.