COST ANALYSIS

CHAPTER 12

Far Eastern University - Alabang

NAME : MARCUS JAY PASTORFIDE

What is COST ANALYSIS?
The process of calculating the cost and benefit
of a situation, project, or decision. It involves
measuring the cost of inputs and outputs, and
comparing them to the potential earnings or
return on investment.

Purpose?
Cost analysis can help in determining the optimal
level of production, planning, and cost reduction.
It may also require certification and evaluation of
profit depending on the level of competition and
pricing.
 Real Cost
Analysis Leads
to Real benefits 01. 02.
Operational Talent acquisition
excellence that and retention
brings together an
attention to quality,
and cost control

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 Real Cost
Analysis Leads
to Real benefits 03.
Employee and
customer focus

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 INNOVATION 01. Developing & maintaining a sales
force is expensive

Learning about the Lifetime

Value of the Customer
02. Companies assess how to best use
this resource

03. One tool used is Lifetime Value of the

Customer

04. Must analyze cost of doing business

with customers

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 Full Cost
01.
versus
Full-cost (net profit) - many of the indirect
Contribution costs can be assigned on the basis of a
demonstrable cost relationship
Margin
02.
Contribution Margin - direct product costs
identified associated with revenue to
yield a true Gross Profit

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 Full Cost
03.
versus
Profit/Loss Statement (Net Income) –
Contribution distinguishes between costs and expenses
Margin
04.
Costs – often restricted to materials, labor,
power, rent and other miscellaneous items
used in making the product

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ABC Accounting 01. Activity-based costing (ABC)

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ABC Accounting 02. Allocates costs to activities

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 Identifies fixed cost

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ABC Accounting 03. components for production
and sales and associates
them with the products sold

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 Costs once assumed to be

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ABC Accounting 04. fixed in the short-run can be
associated with operating
units such as a sales office

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 Leadership:
Ripping Off the
C o m p a ny
Using the T&E 01. 02.
E x p e n s e A c c o u nt Travel &
Fraud related to T&E
Entertainment
has Increased
Account

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 Leadership:
TWO COMMON FRAUDS
Ripping Off the
C o m p a ny Mischaracterized Overstated Expenses
Using the T&E Expenses

E x p e n s e A c c o u nt When salespeople have

a personal dinner or buy
Making a $50 dinner a
$100 expense on the
a personal item and T&E Report
charge it as a business
expense

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 THE PROCESS
ILLUSTRATED
01. 02.
Salary and They reflect what each
representative is paid
DIRECT SELLING commission items
need little
and commission each
earned on what was
explanation. sold

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 THE PROCESS
ILLUSTRATED
03.
Contact management software such as
DIRECT SELLING GoldMine enables sales managers and
salespeople to track sales calls by type

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 THE PROCESS Three reasons to allocate
per-unit-product
ILLUSTRATED
01. It is one of the most popular

ADVERTISING
There is no clearly preferred
Amount spent on 02. alternative in the literature
advertising for each
product
03. The example illustrates the cost
analysis process

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 01.
WAREHOUSING & SHIPPING
THE PROCESS The profitability analysis by sales representative
does not include an allocation for the warehouse
ILLUSTRATED person’s salary

02.
ORDER PROCESSING
The costs allocated are the direct expenses for
postage and supplies

03.
TRANSPORTATION
Charged against the individual sales representa-
tives according to the number of bicycles each sold.

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 Marketing Cost
Analyses :

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Benefit - isolates most/least
Promises and 01. profitable segments of
Business.
Problems

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 Marketing Cost
Analyses : Combined with effective sales

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Promises and 02. analysis, provides a formidable
tool for managing personal
selling
Problems

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 Marketing Cost
Analyses :

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Promises and 03. Improves
control
planning and

Problems

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 Marketing Cost
Analyses :

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Promises and 04. Required data may be costly
to acquire, maintain

Problems

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 Marketing Cost
Analyses :

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Promises and 05. Cost allocation decisions can
be difficult

Problems

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 Return on Assets
Managed
01. 02.
Sales analysis - Cost analysis -
measures the results measures the cost of
achieved by the sales producing those
force. results.

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 FORMULA

Contribution as Asset turnover rate =

ROAM = Contribution as percentage of sales = sales divided by the
a percentage of sales x ratio of net contribution assets needed to
Asset turnover rate divided by sales produce those sales

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THANK
YOU!