(p. 191) ______________ theory is typically associated with greater profits. a. Signaling b. Compensating wage differentials C. Efficiency wage d. Human capital 4. (p. 193) Implications of _______________ theory are that pay level affects an employer's ability to recruit.
As the time horizon increases, variable costs rely less on existing factors and restrictions and therefore will begin behaving differently which will in turn affect the cost of production (Wright, 2007). The second way a firm that’s into profit maximization can decide its greatest level of output is by way of the marginal revenue -- marginal cost method. This is done by subtracting the marginal cost from the marginal revenue that a product generates. Using marginal cost and marginal revenue as the bases, profit maximization will be obtained at the point when marginal revenue is equal to marginal cost. If the marginal revenue is greater than marginal cost this would be when a profit maximizing firm would need to increase production until marginal revenue is equal to marginal cost.
Supply and Demand Simulation Amanda Huenefeld ECO/365 Sadu Shetty January, 14, 2013 Introduction Supply and demand are the two influences that govern pricing in the larger picture of a viable economic market. The two factors are like two forces. Equally the conclusive levels of supply and demand, and the comparative levels of the two in contrast to one another, are significant. The standard of supply and demand is that if one or both varies, there will be a transient difference in the amount of product manufacturers are equipped to sell and the quantity that consumers are willing to buy. This difference will cause the market price to increase or decrease when necessary until the quantities are the same.
Costing Model: There are two costing models that can be used to allocate costs: traditional costing and activity based costing. Both costing models allocate direct material costs, direct labor costs and manufacturing overhead costs to the products being manufactured. However, the difference between the two models involves how the manufacturing overhead costs are allocated. Traditional costing allocates overhead costs to the products manufactured on the either direct labor hours, number of units produced, or machine hours used in production. The traditional costing method lumps all overhead costs into a single pool and allocates those costs across all products produced based on one of the three cost drivers (direct labor hours, number of units produced, or machine hours).
An activity can have more than one cost driver attached to it. For example, a production activity may have the following associated cost-drivers: a machine, machine operator(s), floor space occupied, power consumed, and the quantity of waste and/or rejected output. (BusinessDictionary.com, 2013)" I think the company would do better with Activity Based Costing (ABC) because this allocation method is more accurate because it takes all cost related factors into consideration. The first way the company was allocating department costs was and even three way split, which was undercutting Fabricating, which needs more funds, and this method was overcompensating Laminating and Assembling, which require less. With the ABC Method, the costs are factored by the different cost drivers, such as machinery, staff, number of parts needed, amount of products made, as well as direct material costs and direct labor hours.
Costing the activity is normally an in-between step in the distribution of overhead costs to products, to acquire more precise product cost information. However, occasionally the activity itself is the cost object of interest. Like for example, manager of a company might desire to know how much the company spends to acquire their raw materials, as input in a sourcing judgment. The activity of acquiring the raw materials incurs costs associated with negotiating prices with suppliers, issuing purchase orders, receiving fabric, inspecting fabric, and processing payments and returns. The steps to product costing are: 1) Identify the cost;
The Production Possibility Frontier Outline how the production possibility frontier can be used to demonstrate opportunity cost and explain the effects of unemployment and technological change on production in the economy. The production possibility frontier is useful in demonstrating opportunity cost as well as being invaluable when explaining the effects of unemployment and technological change on production in the economy. The production possibility frontier is the most effective way to demonstrate opportunity cost. The production possibility frontier is a graph that contains all possible combinations, in terms of quantity, of an economy that manufactures only two unique products at maximum efficiency, is of a given technology standard and has a fixed amount of available resources. The opportunity cost or ‘real cost’ is not the monetary value paid for a good or service but the next best alternative forgone in its place.
The result of implementing the Activity-Based Costing (ABC) system had demonstrated that the cost per box of each product lines differed from the cost per box calculated under both the Volume-Based Costing and the Direct Materials plus Direct Labor (DM + DL) Costing systems. Since the ABC system assigned cost drivers for each activity cost pool, the overhead cost allocated to each product lines under the ABC systems must be substantially more accurate than the overhead cost allocated under the Volume-Based Costing and DM + DL Based Costing. Accuracy in this context refers to the congruency of each product lines and the part of the overhead cost from a particular cost pool it should be accounted for. By doing the procedure described above for each activity cost pool, the overhead cost allocated to each product lines under the ABC system would be more accurate comparing to the Volume-Based/ DM + DL Based Costing systems. This is because Volume-Based/DM + DL lump all the activity cost pool together, in practice, summing all the overhead costs in to one number.
Activity based costing (ABC) on the other hand does not just rely on cost of materials for production or service but rather, also, on issues like overhead costs caused by certain activities, charges on overhead to outputs due to driving rates and the established overhead cost pools (Atrill & McLaney, pp 136-140). The drivers of the ABC to managers is involved in the various support activities involved in the production process of service or product ,the cost attributed to each support service and the factors that cause a change in the support activity. (Atrill & McLaney, pp.138) ABC can be applied in a manufacturing service sector like Atrill & McLaney (pp. 138, 2009) explained by establishing an overhead cost pool for each of the laborers activities. This will include the cost of running the factories like rent, heating and lighting, salaries and benefits of employees, cost of inventories, stores and the direct labour rate charged overhead
For production, there were various personnel in-charge of both order and volume related work, these include stock persons, production planners, foremen, operators and people responsible over products ready for transportation. Old cost system There were two pools of indirect costs which were manufacturing costs allocated on a basis of direct labor, and selling/admin costs that were treated as period costs. Production overhead, selling and admin costs were all fixed. Most of the company’s sales, marketing and admin. costs were recognised as a percentage of sales revenue.