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Managerial Accounting and Control Dr. Mohamed Youssef Lecture 5

# Managerial Accounting and Control Dr. Mohamed Youssef Lecture 5

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12/07/2009

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Managerial Accounting and control
Dr. Mohamed Youssef
Lecture 5
Part 5 : Compute the target sales price by various approachand compare advantage and disadvantageof these approaches
Target price = cost +make-up % of cost
Make up % :amount of profit in cost percentage.
Example:
Selling price is \$1000
Year 2004
:Selling price \$1000Less manufacturing cost \$(600)Variable 400Fixed200Less marketing cost \$(150)Variable 100Fixed 50Less admin cost \$(50)Variable 0Fixed 50
Operating income 200
Total Variable cost=400+100 =500
Total cost =800
Total manufacture =600
Total Variable Manufacture cost =400
1. Using variable manufacture cos
TP =V. Manufacture cost +mak-up % V. Manufacture cost=400+(1000-400)/400 % * 400=400+150% 400
TP =V. Manufacture cost +150 % x V. Manufacture cost
For year 2005 if Variable manufacture cost increase by 50 % what will bethe new target priceTP =V. Manufacture cost +150 % * V. Manufacture costNew V. Manufacture cost= 400+400 * 0.5 = 600TP =600+150% * 600=1500
Chapter 5 & chapter 3 1

Managerial Accounting and control
Dr. Mohamed Youssef
Lecture 5
2.Using variable cos
TP =Variable cost +mak-up % Variable cost=500+(1000-500)/500 * 500=500+100 % * 500
TP =Variable cost +100 % * Variable cost
For year 2005 , if there is change in total variable cost by 20 % what will bethe new target priceNew Variable cost= 500+500 * 0.2 = 600TP =600+150% * 600=1200
3.Using total cos
TP =Total cost +mak-up % Total cost=800+(1000-800)/800 * 800=800+25 % * 800
TP =Total cost +25 % * Total cost
For year 2005 , if there is change in total cost by 50 % what will be the newtarget priceNew Total cost= 800+800 * 0.5 = 1200TP =1200+25% * 1200=1500
Example:
If
TP =Total cost +20 % * of sales
And Total cost = \$ 800, TP = 1000, if bid price 800 shall we accept thisbidding or notSoTP =Total cost +20 % * of sales800=total cost +20/100 * 800Total cost = 800 –160 =640So if we can reduce the cost to 640, we can accept this bidding
Chapter 5 & chapter 3 2

Managerial Accounting and control
Dr. Mohamed Youssef
Lecture 5
Chapter 3Measurement of cost behavior
CostsVariable cost Mixed costsFixed costsFixedVariableY=
α
+
β
* xY :Mixed cost
α
:Fixed cost
β
:UVCx:Cost drive activity in number of units
Example :
If fixed maintenance cost = 900, anf fanction of mixed cost as followY=
α
+0.41 * x what will be the mixed cost if cost drive is number of hours , if the number of hours equal to 10000 and the second time equal 5000
Y= 800+0.41 *10000 =10000
Y= 900+ 0.41 * 5000 =7950To establish this equation we have two approuch
High-low method
Least squaresregression analysis (by computer)
Steps in estimiting acost function
Choose the dependent variable
Identify the cost drive
Collect data on the dependent variable and the cost drive
Estimate the function
Evaluate the estimatd cost function
Chapter 5 & chapter 3 3costCost derive