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Acct 505 Week 7 Term Project Capital Budgeting

1058 words - 5 pages

Accounting 505 term project
AC505/Term Project
Direct material cost is known as any material cost that can be identified specifically with a final cost objective. Material costs must not be charged to a contract as a direct cost if other material costs incurred for the same purpose in like circumstances have been charged as an indirect cost to that contract or any other contract. All material costs specifically identified with other contracts are direct costs for those contracts and must not be charged to another contract directly or indirectly. Example of a direct material cost is a radio installed in an automobile.
A direct labor cost is any labor cost that can be identified ...view middle of the document...

Indirect labor includes the labor cost of janitors, supervisors, materials handlers and night security guards. Costs incurred for heat and light, property taxes, insurance, depreciation and so forth associated with selling and administrative functions are not included in manufacturing overhead. Studies have found that manufacturing overhead averages about 16% of sales revenue. Manufacturing costs that cannot be traced directly to specific units produced is a manufacturing overhead. Examples of manufacturing overhead are Wages paid to employees who are not directly involved in production work. Along with costs such as direct material and
direct labor, cost of manufacturing overhead must be assigned to each unit produced so that Inventory and Cost of Goods Sold are valued and reported according to GAAP.
Total variable costs change when activity changes, and vary with the level of activity. Example of variable cost is the total long distance telephone bill based on how many minutes you talk as activity level changes.
Total fixed costs are unaffected by changes in activity level over a feasible range of operations for a given capacity or capability over a reasonable time period. Fixed Cost of Your monthly basic telephone bill probably does not change when you make more local calls.
Cost volume profit (CVP) analysis is one of the most powerful tools that managers have at their command. It helps them understand the interrelationship between cost volume and profit in an organization by focusing on interactions among the following five elements: Prices of products, Volume or level of activity, per unit variable cost, total fixed cost, and mix of product sold. Because cost-volume-profit (CVP) analysis helps managers understand the interrelationships among cost, volume, and profit it is a vital tool in many business decisions. These decisions include, for example, what products to manufacture or sell, what pricing policy to follow, what marketing strategy to employ, and what type of productive facilities to acquire.
Break even is the level of sales at which the profit is zero. CVP analysis is some time referred to simply as break even analysis. This is unfortunate because break even analysis is only one element of CVP analysis. Break even analysis is...

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