Essay About Costs300,000300,000300,000300,000Variable Cost And Fixed Cost

Managerial Accounting Homework
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Acct 125 Management accountingto:        Professor sweeneyfrom:        Jade Vuongsubject:        Homework chapter 2date:        2/13/18AIP 2.1 Variable and Fixed Costs Lab ALab BLab CLab DNumber of blood tests50,00055,00060,00065,000Variable cost 195,000242,000298,000352,000Fixed Costs300,000300,000300,000300,000Variable cost per unit$3.90$4.40$4.97$5.42Fixed Cost per unit$6.00$5.35$5.00$4.62As demonstrated by the table, it’s true that as volume increases, average fixed cost per unit falls. One thing to notice is that the variable cost per unit is not constant but changes according to the quantity of blood tests. Lab A has a variable cost per unit of $3.90 while lab D has a variable cost per unit of $5.32.  The variable cost per unit has increases from Lab A to Lab D while the fixed cost per unit decrease from lab A to lab D. Furthermore, we can see that the decrease in fixed cost per unit cannot off set of the increase in variable cost per unit. Especially the profit from Lab B to Lab D decrease according to the increase of the number of blood tests. This can be the consequence the rate of output of operating blood test reaches capacity. Additional costs arise because limitations in facility size cause congestion. The company might need more equipment, or existing equipment might t become overused and additional maintenance costs incurred. Also, employees might have to be paid overtime. An organization can increase capacity for an activity, but the cost of buying a new facility or hiring and training a new set of employees is really high. We can tell that Lab A and Lab B were operating under normal operations. AIP 2.4 Differential Costs of a New Product Cost-benefit analysis is the process of analyzing alternative decisions to determine which decision has the greatest expected benefit relative to its cost.  Only differential costs and benefits are relevant for decisions, as all other factors are the same for each possible decision. The differential benefit of introducing Syndex Plus was the expected sales from the Syndex Plus which is also the incremental revenues. Incremental revenues are relevant for sure. The differential cost or incremental cost of introducing the Syndex Plus is the additional costs incurred to produce the Syndex Plus. Incremental costs are relevant costs and include all variable costs and any avoidable fixed costs associated with a decision. In summary, Indurin Company should have launched the Syndex Plus as long as the incremental revenue exceeded the incremental cost. The remaining benefits and costs generated by Indurin company such as the sales of Syndex were irrelevant to the Syndex Plus decision, since they were the same whether it decided to launch the Syndex Plus or not.  Therefore, the decision rule of the president is absolutely correct.