Ayah Eca

Evaluating Business Investments Print Email Become our 1st fan on Facebook! Part 1 Introduction , Capital Budgeting , Capital Budgeting Models , Evaluating a Capital Expenditures , Noncash - Nondiscounted Part 2 Cash Flows (CF) , Nondiscounted CF Model , Discounted CF Models , Present Value Calculation Introduction to Evaluating Business Investments We also have Drills , Puzzles , and Q&A for the topic Evaluating Business Investments . Businesses often face the need to spend large amounts of money on assets that will be functional for many years. Here are a few examples: Equipment to improve an unsafe work situation or to protect the environment Equipment to test the consistency of products as required by the customer Equipment to package, label, and ship products according to the customer’s specifications Equipment to reduce labor costs and improve the quality of products Purchase of a building instead of leasing space Expenditures made fo...

At the heart of break-even point or break-even analysis is the relationship between expenses and revenues . It is critical to know how expenses will change as sales increase or decrease. Some expenses will increase as sales increase, whereas some expenses will not change as sales increase or decrease. Variable Expenses Variable expenses increase when sales increase. They also decrease when sales decrease. At Oil Change Co. the following items have been identified as variable expenses. Next to each item is the variable expense per car or per oil change: Motor oil $ 5.00 Oil filter 3.00 Grease, washer fluid 0.50 Supplies 0.20 Disposal service 0.30 Total variable expenses per car $ 9.00 The other expenses at Oil Change Co. (rent, heat, etc.) will not increase when an additional car is serviced. For the reasons shown in the above list, Oil Change Co.'s variable expenses will be $9 if it services one car, $18 if it services two cars, $90 if it services 10 cars, $...

A person starting a new business often asks, "At what level of sales will my company make a profit?" Established companies that have suffered through some rough years might have a similar question. Others ask, "At what point will I be able to draw a fair salary from my company?" Our discussion of break-even point and break-even analysis will provide a thought process that may help to answer those questions and to provide some insight as to how profits change as sales increase or decrease. Frankly, predicting a precise amount of sales or profits is nearly impossible due to a company's many products (with varying degrees of profitability), the company's many customers (with varying demands for service), and the interaction between price, promotion and the number of units sold. These and other factors will complicate the break-even analysis. In spite of these real-world complexities, we will present a simple model or technique referred to by several names: ...

A person starting a new business often asks, "At what level of sales will my company make a profit?" Established companies that have suffered through some rough years might have a similar question. Others ask, "At what point will I be able to draw a fair salary from my company?" Our discussion of break-even point and break-even analysis will provide a thought process that may help to answer those questions and to provide some insight as to how profits change as sales increase or decrease. Frankly, predicting a precise amount of sales or profits is nearly impossible due to a company's many products (with varying degrees of profitability), the company's many customers (with varying demands for service), and the interaction between price, promotion and the number of units sold. These and other factors will complicate the break-even analysis. In spite of these real-world complexities, we will present a simple model or technique referred to by several names: ...

Activity Based Costing with Four Activities Let’s add two more activities to our example: procurement and material handling. The costs of these two activities are not caused by—nor do they correlate with—machine hours. Rather, we will assume that both of these activities are related to the physical weight of the direct material used in making the product. The company determines that $300,000 of its annual manufacturing overhead is associated with procurement and material handling. As a result, the company removes $300,000 from the manufacturing overhead that will be allocated via machine hours, and instead plans to allocate the $300,000 to the products based on the weight of the materials used. The company expects that during the year it will procure and handle 3,000,000 pounds of material. Under activity based costing, the company will assign $0.10 ($300,000 divided by 3,000,000 pounds) per pound of product weight to each unit manufactured. The end result is that the heavier par...

Let’s illustrate the concept of activity based costing by looking at two common manufacturing activities: (1) the setting up of a production machine for running batches of products, and (2) the actual production of the units of product. We will assume that a company has annual manufacturing overhead costs of $2,000,000—of which $200,000 is directly involved in setting up the production machines. During the year the company expects to perform 400 machine setups. Let’s also assume that the batch sizes vary considerably, but the setup efforts for each machine are similar. The cost per setup is calculated to be $500 ($200,000 of cost per year divided by 400 setups per year). Under activity based costing, $200,000 of the overhead will be viewed as a batch-level cost . This means that $200,000 will first be allocated to batches of products to be manufactured (referred to as a Stage 1 allocation ), and then be assigned to the units of product in each batch (referred to as Stage 2 allo...

Activity based costing (ABC) assigns manufacturing overhead costs to products in a more logical manner than the traditional approach of simply allocating costs on the basis of machine hours. Activity based costing first assigns costs to the activities that are the real cause of the overhead. It then assigns the cost of those activities only to the products that are actually demanding the activities. Let's discuss activity based costing by looking at two products manufactured by the same company. Product 124 is a low volume item which requires certain activities such as special engineering, additional testing, and many machine setups because it is ordered in small quantities. A similar product, Product 366, is a high volume product—running continuously—and requires little attention and no special activities. If this company used traditional costing, it might allocate or "spread" all of its overhead to products based on the number of machine hours. This will result in lit...

Are you interested to build your career in business field? And you are good in numbers and ever wonder how a payroll system and business taxes work. Then, career in accounting should be your option. You need to earn a qualification in accounting in order for you to kick start your accounting career and earning an accounting degree online is the easily path to achieve your career goal. Here are 3 keys that should encourage you to earn your accounting degree online. 1. Good Job Demand For Accountant Survey result compiled by the National Association of Colleges and Employers shows that the estimates salary for an accountants range from $44,600 to $85,000. Good estimated income and the high demands for qualified and competent accounts especially in corporate world making the account degree one of the hot degrees being pursued by many online students. If you are excellent with numbers, are willing to put in long hours, and can work well under pressure, then you should select accounting as ...