Wgu Jet2 Financial Analysis Task 4

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Competition Bikes Inc. Summary Report JET2 Financial Analysis, Task 4 June 1, 2014 Introduction 3 A1. Costing Method 3 A2a. Breakeven Point 7 A2b. Breakeven Analysis Change 10 References 14 Introduction: Competition Bikes has expanded its operation and is now producing both the CarbonLite and the Titanium frame bicycles. Because of the change in Competition Bikes operation, a cost study was conducted and an activity-based costing analysis was performed in one of the manufacturing plants. Following the study, a breakeven analysis was completed and target profit projections were generated. The purpose of this report is to provide an analysis on the cost study and breakeven report that were previously completed. A1. 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). This method of costing does not take into account the differences between products when allocating overhead costs, like a product’s custom requirements or production complexity, so the costs are applied the same way across all products produced using the cost driver (The Economist Newspaper, 2009). Activity based costing allocates overhead costs to

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