COST ANALYSIS

Posted on June 15, 2023 by Cheapest Assignment

Order Now
Innovation and Technology Transfer

EXECUTIVE SUMMARY

The report of Bionic Science Plc reflects a comprehensive outlook of the cost and profitability of doing a special project ordered by a client of the company. The special projects involve of production of modified robots that are to be exported to the client. The strategy of the project involves the cost analysis of the company for doing the particular project and its implications and profitability for venturing into the project. It also includes evaluating the cost factors and profitability analysis of the project.

The report states the profitability factor of the company if it does not do the particular project and the profitability factor if it does the project.

The report perceives the relevant and irrelevant cost analysis of the project and indicates the budgeted profit and sales revenue for venturing into the project.

Is resistance a bad thing to managing the changes in the case of holding covid-19?

Task 2

Introduction

The report of Bionic Sciences Plc. highlights the cost analysis of the special project order by the client of the company. It reflects several relevant and irrelevant cost analyses that are done to decide the validity of the order. The cost analyses are calculated to highlight the profitability and productivity of the company for venturing into the special order made by the client.

Findings and analysis

Relevant Cost Analysis of Special New Order

The advice to the Board of Directors about the relevance of acceptance of the order is as follows:-

  1. The principles of relevant cost analysis are explained below:

In considering the relevant cost of a business sunk costs are to be excluded. As pointed out by Sullivan et al.(2014, p. 10) the different types of relevant costs that are included in taking this decision are:

Future or upcoming cash flows: Costs that cannot be avoided in the upcoming period for taking the decision. As stated by Arnold et al. (2015, p. 230) it means future expenditures that the company has to incur for taking the decision.

  1. Calculations of total relevant costs and revenues of this order (refer to Appendix 1).

For relevant costs, some decisions such as additional production, additional processing decisions, and pricing decisions are necessary to be taken into account.

  1. c) Assumptions of relevant and irrelevant costs for doing the project:

Business Strategy

Relevant costs

The above future costs are allocated as relevant and irrelevant costs of the business for doing the special project.

Future costs such as production overheads are necessary and cannot be avoided for accepting the order as the robots ordered by Big Store Inc are compulsory to have modifications. As stated by Coates (2014, p. 882) this will involve additional fixed costs for production of such modified robots for future perspective. To make the productions special equipment is needed for the operations. So in the future incremental costs of W$15,000 is needed for the production of the modified robot for the organization.

A special component of 100 units is required for the production of robots that are specially ordered by Big Store Inc. This will cost W$30000 to the company. The special component is purchased earlier by the company but has been regarded as a surplus of the company and has been fully written off. The company has 1000 units of these components it will use 100 units for the order and sell the rest 900 units for $300 per unit.

The company has to train its staff to produce specially modified robots. For training its staff the company has to incur an extra of W$5000 which is an incremental cost for the company that cannot be overlooked.

To produce the specially modified robots ordered by Big Store Inc the company has to create a project manager for production purposes from the existing staff. Therefore the company has to recruit additional staff for production which will cost the company W$10000 this is the extra cost that is to be incurred by the company for production purposes.

Blog: Customer experience in a Café

Irrelevant costs

The project requires factory spaces that are sitting idle and are meant to be sub-let. The space cost is irrelevant from the perspective of the production of robots which amounts to W$30000. This is a non-cash expenditure for the company as the company will use its free space for the production of modified robots.

To cover the company’s existing direct labor and production overhead costs the company earlier allocated W$1200 per unit, but later found that the costs are to be regarded as fixed costs for production purposes. So this cost is irrelevant as this is the sunk cost of the company which cannot be altered.

The expenses of the company for hiring sales staff for meetings with executives of Big Store Inc. This is the committed cost for the company that cannot be overlooked so this cost is irrelevant for the production purpose.

The classifications of relevant and irrelevant costs are necessary for the company to decide the actual cost of doing production of a particular job. As referred by Dakin et al. (2015, p. 1262) the classifications and identifications of the types of cost is necessary to plan the company for future productions and to stress the management of more relevant cost for doing production (refer to Appendix 2).

Research Proposal – Factors Affecting Profitability in Retail Sector Australia

  1. d) The three considerations that are to be taken into account for deciding the relevance of the decision are:

Cost analysis:

Profitability analysis: The profitability analysis is done to analyze the profit of the business for taking the project. As stated by Dip et al. (2015, p. 1840) this analysis is important as it directly relates to the profit and income of the business if the company takes up the respective project. As stated by Kimura et al. (2015, p. 40) it shows the income of the company that is generated for not doing the specific project.

Market capitalization: Market capitalization is the share of the market and customers that the company has. As opined by Baltes et al. (2015, p. 5) exporting the products to another country will increase the potential market share of the company and profitability. It will create a huge opportunity if the company successfully exports the products to another market (refer to Appendix 3).

  1. e) Evaluating the cost factor, profitability factor, and market capitalizations it is stated that if the company ventures into the project for its client Big Store Inc the company has to produce specially modified robots. As stated by Osadchy et al. (2015, p. 390) if the company considers irrelevant costs the company will not make any profit by selling the specially modified robots to its clients rather it will make a loss of W$145000. But if the company did not consider irrelevant costs the company can make a profit of W$10000.

Get Best microeconomics assignment Help from Cheapest Assignment

(refer to Appendix 4).

Table with results given below:

particulars amount
Sales Quantity (units) 2200
Production Quantity (units) 1700
Sales Revenue 9050674.67
Cost of sales 5733000
Gross Profit 2499000
R&D 468000
Marketing 115000
Administration 278000
Overheads 961000
Operating profit 677000
Profit before tax 608000
Tax 56000
Profit after tax 552000

Are You Looking For Economic Assignment Help Services in the UK?

Recommendation

The company should not accept the order of Big Store Inc. as it will create a loss for the company. To produce specially modified robots ordered by the client Big Store Inc. the company will incur huge amounts of losses, and the loss of the company will not be easily overcome. So it is best not to accept the special order of Big Store Inc.

Conclusion

The cost analysis report of the company reflected the relevance of the special project ordered by the client. This report made a clear view of the relevant and irrelevant costs that are included in manufacturing the special project. It gives a clear view of the profitability of the company for venturing and investing in this project.

References

Arnold, U. and Yildiz, Ö., 2015. Economic risk analysis of decentralized renewable energy infrastructures–A Monte Carlo Simulation approach. Renewable Energy, 77, pp.227-239.

Baltes, N., Dragoe, A.G.M. and Ardelean, D.I., 2015. Study regarding the determination of the financial performance of a company through market rates. Studia Universitatis Vasile Goldis Arad24(3), pp.1-10.

Coates IV, J.C., 2014. Cost-Benefit Analysis of Financial Regulation: Case Studies and Implications. Yale LJ124, p.882.

Dakin, H., Devlin, N., Feng, Y., Rice, N., O’neill, P. and Parkin, D., 2015. The influence of cost‐effectiveness and other factors on nice decisions. Health economics, 24(10), pp.1256-1271.

Dip, F.D., Asbun, D., Rosales-Velderrain, A., Menzo, E.L., Simpfendorfer, C.H., Szomstein, S. and Rosenthal, R.J., 2014. Cost analysis and effectiveness comparing the routine use of intraoperative fluorescent cholangiography with fluoroscopic cholangiogram in patients undergoing laparoscopic cholecystectomy. Surgical endoscopy28(6), pp.1838-1843.

Kimura, T., Shiomi, H., Kuribayashi, S., Isshiki, T., Kanazawa, S., Ito, H., Ikeda, S., Forrest, B., Zarins, C.K., Hlatky, M.A. and Norgaard, B.L., 2015. Cost analysis of non-invasive fractional flow reserve derived from coronary computed tomographic angiography in Japan. Cardiovascular intervention and therapeutics, 30(1), pp.38-44.

Osadchy, E.A. and Akhmetshin, E.M., 2015. Development of the financial control system in the company in crisis. Mediterranean Journal of Social Sciences6(5), p.345-400.

Sullivan, S.D., Mauskopf, J.A., Augustovski, F., Caro, J.J., Lee, K.M., Minchin, M., Orlowski, E., Penna, P., Barrios, J.M.R. and Shau, W.Y., 2014. Budget impact analysis—principles of good practice: report of the ISPOR 2012 Budget Impact Analysis Good Practice II Task Force. Value in health, 17(1), pp.5-14.

Are You Looking For Urgent Essay Help?

Appendices

Appendix 1

  1. Calculations of total cost and revenues for the above decision are:

 

Total Relevant Costs for the year 2032
particulars amount
Additional fixed production
overheads required for modifications
of robots and to hire special equipment. W$15000
special components 1,000 units (100*300) W$30000
Research and development spending W$300000
Staff training W$5,000
Advertisement spendings W$15000
Wages and salaries of Additional production employees W$10000
Factory space W$30,000
Fixed costs (direct labor & productions overhead costs) (W$1200*100) W$120000
Sales overhead W$5,000
Total Relevant costs W$530000
Total Revenues from the special order
Sales                                         (100 units * W$4,000 per unit) W$400000
Loss W$130000

There Are Many Things About Omicron Restrictions Which You Have To Know Before Going To the US, UK Or France From India. Important Details

Appendix 2

Calculations of total relevant costs:

 

  Relevant Costs     Irrelevant costs  
particulars amount   particulars amount
             
production     factory space 30000
overheads 15000        
        Direct labor  
special component 30000   production overhead 120000
             
staff training 5000   sales overhead 5000
             
additional 10000        
production employee        
             
total relevant costs 60000   total irrelevant costs 155000
 

Sales: W$400000

Profit: W$340000

 

           

Human Resources Management

Appendix 3

c)

  Alternative Income    
Income if the company does not do the project    
       
particulars   amount  
       
Sales of Special components (1000 units*W$300 per unit) W$300000  
income from subletting   WS30000  
total   W$ 330000  
       
  Profitability analysis for not incurring the respective project
       
Without considering the Irrelevant Costs  
particulars   amount  
       
Income if the company    
does not do the project W$330000  
       
Profit of the company    
if it does the project W$340000  
       
Net Profit      
for doing the project W$10000  
       
Considering the Irrelevant Costs  
       
particulars   amount  
       
Income if the company    
does not do the project W$330000  
       
Profit of the company    
if it does the project W$185000  
       
Net loss      
For the project W$145000  

ACC03043 Assessment

Appendix 4

  1. e)

Decisions from Summary:

particulars 2030 2031 2032
R&D project numbers No. 6 No. 6 No. 6 & 12
R&D spend (W$) 300000 300000 900000
production quantity 1600 1600 1600
production staff 125 125 125
capital expenditure (W$) None None None
retail selling price (W$) 5000 5050 5150
advertising spend (W$) 10000 10000 15000
wages/salary rate (W$ pp pa) 10000 9000 10000
training spend (W$) 50000 50000 100000
number of shares issued none none none
price of shares issued none none none
overdraft limit (W$) 1.5 m 1.5m 1.5m
amount of bank loan (W$) 1 m 1 m 1 m
credit period for suppliers 90 days 90 days
credit period for customers 90 days 90 days
amount of position N/A 70000
amount of accrual n/a n/a

 

Order Now