ME 2605 -Performance and Cost analysis AMRISH GUPTA LI HONG RAMESH KHANAL XIONG JIE INTEC ENTERPRISES.
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ME 2605 -Performance and Cost analysis
AMRISH GUPTALI HONG
RAMESH KHANAL XIONG JIE
INTEC ENTERPRISES
Product portfolio
Value Chain
Milk CanKitchen Utensil
Pump&MotorsAgriculture Equipment
Research and
Development Procurement Assembly
Quality Control
PRODUCTION Selling & administration
Fasteners
Cost centre, profit center, invest centre
Managerial Strategy
• Price taker facing long term product-mix decisions – Activity based profitability analysis essential.
• Target costing – non-customized high sales volume products.– Price dominates markets.
Second Stage AllocationFirst Stage Allocation
Traditional approach
Assigning to final product
Traditional approach
Second Stage allocation
ABC Approach
First Stage allocation
Assigning to final product
ABC Approach
Cost Comparison
Break Even Analysis
Product line A
0
500000
1000000
1500000
2000000
2500000
0 5000 10000 15000 20000
quantity
amo
un
t FC
TC
Revenue
Product line B
0200000400000600000800000
10000001200000140000016000001800000
0 5000 10000 15000 20000
Volume
Am
ou
nt FC
TC
Revenue
Product line C
0
200000
400000
600000
800000
1000000
1200000
1400000
0 5000 10000 15000 20000
Volume
Am
ou
nt Fc
TC
Revenue
Sensitivity to Volume
1630.0
1640.0
1650.0
1660.0
1670.0
1680.0
1690.0
1700.0
1710.0
1720.0
-12% -7% -2% 3% 8%
Th
ou
san
ds
% change
To
tal o
ve
rhe
ad
Receiving Cutting & grinding
Machining Gen Assembly
Selling and Admin
Sensitivity to total over head
Break Even Analysis
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