Financial Analysis Term Paper Example | Topics and Well Written Essays - 1250 words

Financial Analysis - Term Paper ExampleIn the case of Competition Bikes Inc., they have been using traditional costing methods and have recently given ABC a try. The following is the data for the overhead be of six items From the figure above, we catch the difference in production costs due to the cost all(a)ocation method. Under the traditional approach, the manufacturing overheads were overpriced for the te illustration at $239,020 whereas the actual costs is $188,415. Consequently, the total manufacturing cost is in any case affected. Using the ABC approach would reduce the manufacturing cost of Titanium products, hence, helping the company urinate better margins. Similarly, for the Carbon DL mould, the manufacturing overhead is underpriced at $232,380 whereas using ABC, we found it to be $282,985. Therefore, the product cost is less than the actual cost incurred. Hence, based on the above findings, we john conclude that Activity Based Costing method is the right approach f or cost allocation as it allocates costs to individual activities devising cost identification better. Moreover, it also helps in making operational improvements as with ABC, we have a clear idea of the cost centers. Evaluation of Cost-Volume-Profit Cost-volume-profit analysis also sometimes termed as breakeven analysis is the point at which grosss equal costs (both stock-still and variable costs), i.e. a point of no loss or no gain. The analysis assumes that costs and revenue behave in a linearly and both fixed and variable costs have been accurately assigned. It also assumes that all units produced are sold and in the case of more than one type of product, the sales mix remains constant. Cost-Volume-Profit amalysis is the analysis that provides a company a petulant understanding of the number of units they can produce to earn a particular amount of profit while incurring certain cost. One of the tools of Cost-Volume-Proft is Breakeven Analysis, which describes the units are whi ch revenue equal cost. Bascially, this means that if Competition Bikes can sell more than 1415 units of the Titanium model and 786 units of CarbonLite, they would be able to earn profit. Breakeven analysis describes the volume above which a company can earn profits while incurring the same amount of costs. The following figure provides the calculations for the Breakeven Analysis of Competition Bikes Inc. for their plant in San Diego with Titanium model of 900 units and CarbonLite model with 500 units. From the figure above, we can see that if Competition Bikes Inc. sells a total of 2201 units of Titanium and CarbonLite models combined, they would be able to breakeven and if they sell more than 2201 units, they can earn profit. It is also necessary to find the individual breakeven points of both the models. Competition Bikes need to sell 1415 units of Titanium model and 786 units of CarbonLite to be at the point where they stomach no loss and no gain. If we analyze the breakeven poi nt in terms of sales dollars, we know that for Titanium, $1,273,500 are the breakeven figures whereas for CarbonLite they are $1,175,070 as it is expensive than the Titanium model that is why lesser units and more sales dollars result in the breakeven of CarbonLite. An increase in fixed costs results in increasing both the breakeven units and sales dollars. If the fixed costs of Competition Bikes Inc. increases by an additional $50,000 and the cost of direct materials increase by 10%, then the following breakeven calculations would result As we can see