Competition Bikes Inc. Storyline Essay

To Vice PresidentThe sideline is a compendious report to exhort whether emulation Bikes should change its traditional exist mode to employment base termsing, and an abstract of the checkeven bloom with regards to gross revenue wholes and dollars for twain CarbonLite and titanium wheel arounds. It also discusses the impacts to the cleaveeven compass point. The personify-volume- improvement evaluation and the traditional vs activity based wooing order bash analysis were utilized for the review and analysis.traditional establish embody vs act found CostingTraditional Based Costing Method (TBC). TBC uses one rate, the overall(a) speak to of come back, to estimate cost based on the revenue returnion created. Unlike first rudiment, manufacturing be in TBC atomic number 18 only appoint to interchange merchandises and do not discover for nonmanufacturing cost such as administrative be. This method is general not as accurate as first principle as it does not account for cost specifics to the aim of reapings. For disceptation Bikes, the caller thunder mug sympathize its manufacturing overhead is $239,020 for the titanium oscillations, and $232,380 for the CarbonLite bikes for a make out of $471,400 in overhead costs. This doer the building block cost for individually is $713 for atomic number 22 bikes, and $1359 for the CarbonLite bikes.Activity Based Costing Method (ABC). ABC determines and allocates cost by activities a caller-out executes. This generally happens in four locomote identify distributively activity and its associated costs, both sum of money and in choose estimated cost driver and quantity allocation computation and cost allocation to the respective activity. ABC refines the flair indirect costs argon allocated to production and focuses on the costs of for each one separate activity. Costs are also elevate assigned to each product inside the activities and each activity has its own cost driver. B ecause of thespecificity, active based costing provides a more accurate picture of the depend satisfactory costs. Direct material (DM), and direct comprehend (DL) are the alike(p) for each bike in using TBC or ABC.However, in using ABC, the attach to john break out the manufacturing overhead into factory setups, look operate, engineering serve, product movements, utilities and services, and depreciation. The total for each bike using the ABC method is $590,715 for si bikes, and $729,985 for CarbonLite bikes. Although the total is still the same $471,400 in overhead costs, the ABC method allows contention Bikes to see that the atomic number 22 bikes deprecate frequently faster than the CarbonLite and that it takes more utilities and services to make those bikes. Factory setups and quality control are much higher for CarbonLite bikes than those for te ones. Per whole, the atomic number 22 Bikes cost $656 each and the CarbonLite bikes cost $1460.Recommendation.It is recom mended to use ABC to determine confessedly costs associated with activities and products. This allow for give the family more accreditledge of its finances and spending and in return by see a clearer picture of costs, make disclose decisions on funding and budget, and gain cost conservations. Activity based charge in Competition Bikes can use ABC to make decisions that ontogenesis profits turn still meeting customer needs. apprehension where costs are going allow protagonist Competition Bikes to remove unessential costs and set fair cost for the products. Overpricing products causes a lost in trade sharing while underpricing products diminishes revenue. Better prices for consumers symbolises more business for the conjunction.With activity based costing, Competition Bikes go out be able to determine the optimum sales units infallible with the sales mix of 9 titanium bicycles generated for every 5 CarbonLite bicycles that go away produce the bikes at San Dieg o at breakeven. The telephoner pull up stakes also be able to measure activities on a regular undercoat to reduce future costs as well. Evaluating activities and setting sales prices are soften of value engineering. Currently the company thinks it costs $1359 to make a CarbonLite bike and draw set the interchange price accordingly. In reality, the bikes cost $1460 to make. With a $101 difference, the company may want to ad tho their selling price in future months. victimisation ABC also allows the company to use the Just in Time (JIT) body. This governance allows ensures materials are purchased just in epoch to produce the products, and products are completed just in time for delivery. JIT uses the demand-pull system to gravel the order, schedule production, delivered materials, and finished product delivered to the customer. This lessens the quantity of excess parts and inventory saving the company money as well.Breakeven augurThis analysis will evaluate the breakeven point for Competition Bikes Inc. gross revenue units and sales dollars will be identified for the breakeven point. These sales units and dollars will be broken dash off surrounded by CarbonLite and Titanium bikes.The breakeven point is utilize my companies to come about loss. The Cost Volume Profit (CVP) is the spear in which to capture the breakeven point. Sometimes it is referred to as the breakeven analysis. The CVP assists the company in identifying future carrying out need, production costs, and expansion possibilities based on estimating costs, prices, and volumes. This profit response can help Competition Bikes determine the amount of essential sales, what products to manufacture, pricing policies, marketing strategies, and how much profit is actually needed. In this analysis we will assume that the doctor and inconsistent costs remain constant, and that the number of units produced equals the number of units the company sells.CVP is defined by the equation tote up tax incomes inwardness Costs = Profit. The breakeven point is the point in which the CVP equals zero or, taxs Expenses = 0. Meaning, the revenues cover all the costs, unbending and variable. Therefore, the CVP can be kick upstairs broken down into get along Revenue Total Fixed Costs Total variable star Costs = Total Profit.The division brim is then identified by Total Revenue Total variant Costs (leaving out the contumacious costs). office edge is important to identify the differences in each products profits. For Competition Bikes, the region allowance account for the Titanium bikes is $900-$679=$221. TheCarbonLite Bikes yield $1495-$1384=$111 each. Using the 450 Titanium bikes and 250 CarbonLite bikes exchange, the total unite contribution molding for Competition Bikes is $127,000. Thats broken down like this Titanium Bikes contribution margin of $221 per unit, 450 units equals $221*450, or $99,450. CarbonLite bikes contribution margin of $111 per unit, 250 units equals $27,750. plowshare margins $99,450 + $27,750 = $127,200 Total parcel Margin.To determine the profits in more detail, we use the equation (Selling Price (per unit) * cadence Sold) (Variable Costs (per unit) * measurement Sold) Fixed Expenses = Breakeven betoken (Zero). The quick-frozen costs are the units sold * the plodding intermediate contribution margin. The heavy bonnie contribution margin is used to find the breakeven point and is essentially the number of contribution margin amounts per unit. The equation is Total Contribution Margin / Total Quantity Sold. For Competition Bikes, our combined weighted average contribution is $181.71. Thats $127,200/ 700 units sold (450 Titanium and 250 CarbonLite bikes) = $181.71.To establish the breakeven point, we also need to k direct the combined revenue and costs as well. So we calculate total revenue as the following. Titanium bikes are $900 each and 400 units sold, equals $405,000. The CarbonLite bikes are $14 95 each and 250 sold which equals $373,750. Combine the $405,000 + $373,750 = $778,750 Total take over Revenue.The variable costs for each are Titanium bikes $679 in costs, 450 sold, which equals $305,550 or $679*450 = $305,550. CarbonLite bikes $1384 in costs, 250 sold, which equals $346,000, or $1384*250= $346,000. The two together, $305,550 + $346,000 = $651,550 Total Combined Variable Costs. The total combined margin can also be calculate by taking $778,750 subtracting the $651,550 and it equals the same $127,200 Total Combined Margin we calculated earlier. We use this as a check and balance system here.To determine the breakeven units, we look at the icy costs and weighted average contribution margin discussed earlier. The flash-frozen cost for the company is $400,000. Divided by the weighted average contribution margin181.71, we get the breakeven units for the product sales mix of 2201.The contribution margin ratio is the percentage of contribution margin to revenue. To f ind the contribution margin ratio, we tell the total combined margin by the total revenue. This tells us by how much the price per unit exceeds the variable cost per unit. In this scenario, Total Combined Margin $127,000 divided by Total Revenue $778,750 which is .163, or $127,000 / $778,750 = .163 Contribution Margin Ratio.Since the bikes are not equal, we moldiness calculate a product mix in amplification to the weighted average. Using the weighted average, we can calculate the breakeven point in a proportionate way using sales units and sales dollars. For sales units, we take the breakeven units for the product sales mix and multiply it by the ratio of units sold divided by the total number of unit sold. So for Titanium, the sales units at the breakeven point is 450 / 700 * 2201, or 1415 units. For CarbonLite, 250 / 700 * 2201 = 786 units.To calculate the sales dollars, we multiply the sales units by the sales price. In this instance, Titanium is 1415 units cypher by $900 cost for each unit or, 1415 * $900 = $1,276,500. CarbonLite is 786 units multiplied by $1495 price for each unit, or 786 * $1495 = $1,175,070. The combined total sales dollars is $2,451,570To break even, the profit must be zero. Gains and losses are equal. For Competition Bikes, the breakeven point is 1415, or $1,276,500 in Titanium bikes, and 786 CarbonLite bikes, or $1,175,070.Impacts of the Breakeven PointA2b. Based on an evaluation of cost-volume-profit, Prepare a summary report that describes the impacts to the breakeven point if company focussing needed to ontogenesis the cost of direct materials by 10% cost increase and needed to add $50,000 in fixed costs to the production facility.Company management has asked for a report on the impacts of increase thecost of direct materials by 10% and fixed costs by $50,000 in relation to the breakeven point. The contribution margin and weighted average are based in part on direct materials, or variable costs. Raising the costs by 10% is e poch-making and will clear a great impact on the company.Total Revenue is $778,750 and variable costs now $681,800. This increase is broken down by variable cost per unit to $709 for Titanium bikes, and $1551 for CarbonLite.The Contribution Margin per unit is now 191 and 44 respectively baleful the total combined contribution margin to $96,950. CarbonLite bikes contribution margin decreased from $111 to $44 per unit, over a 60% decrease. mensural by dividing the Total Combined Contribution Margin $96,950 by the Total Units of 700, the 138.50 weighted average contribution margin per unit also dropped by 24% from 181.71. This shows how significant a 10% can be to the contribution margin. Ten percent in one area can mean much larger impact in other areas.With an increase in fixed costs to $450,000 that now brings the breakeven units for the product sales mix to 3249. We calculate this by $450,000 fixed costs divided by the cast down weighed average contribution margin 138.50. This continues to change numbers as we calculate sales units and sales dollars. Titanium bikes sales units are 450 units divided by 700 total units, multiplied by the weighted average 3249 for 2089 units. CarbonLite bike sales units are 250 units divided by the 700 total units, multiplied by the weighted average 3249, totaling 1160 sales. Sales dollars are calculated as Titanium bikes 2089 units * $900 = $1,880,100 and CarbonLite bikes as 1160 units * $1495 = $1,734,200 for a total $3,614,300.The breakeven point is now increased. Sales for Titanium bikes is now up to 2089 units, or $1,880,100 and CarbonLite bikes up to 1160 units, or $1,734,200. By face lift direct costs 10% and fixed costs 13%, Competition Bikes now has to sell 674 more Titanium bikes, and 374 CarbonLite bikes to break even. Thats a 48% increase.Based on this analysis, it would be in Competition Bikes best interest to try to keep costs low. Variable and fixed costs show that a small increase can significantly impact t he companys breakeven point. Variable costs have a higher impact than fixed costs. Direct costs per unit should be specifically addressed in decrease costs as well as increasing sales.