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Star company - a partnership firm of Mr. “A” and Mr. “B”, deals in ball points manufacturing business. Despite of using the traditional approach of costing, the company is earning handsome profits. One day Mr. C (son of partner A) visited the firm and got a chance to check some of the organization’s reports incidentally. He found that due to the lack of knowledge about costing techniques, the plant capacity is being incorrectly estimated and this has resulted in underutilization of the plant. He discussed this issue with his father on the dinner and suggested Mr. A to adopt some modern costing techniques so that the plant capacity can be fully utilized. Mr. A discussed this issue with his partner, Mr. B on the next day. But, both the partners were hesitant to adopt the suggestion because they thought that due to this, their cost of goods produced might gone up and hence their profit could be reduced. Later, Mr. C tried to convince them that the profit could not be reduced. He strongly recommended the proposal by saying that “Variable cost varies on per unit of output produced, whereas fixed cost remains constant on per unit of output produced”.


Required:

As a student of cost accounting, will you be agree with the statement given by Mr. C? Support your answer with logical reasons.

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Replies to This Discussion

PLZZZ SHARE UR IDEAS HERE!!!

Variable cost is constant in both the above table(increasing or decreasing) while variable cost is changing by increasing or decreasing the production volume,,,,but in the GDB statement variable cost varies per unit?From Handouts)>in case of production volume increased, the variable cost remains same on per unit basis and increases in total. On the other hand the variable cost remains same in per unit basis and decreased in total if the production volume is decreased. how?? can any body tell me?

I think Mr.C gave wrn statment???

i agree with you Ahmad.bcz when we talk about cost behavior per unit of production, variable cost per unit remains constant.means that increase or decrease in production volume cause no change to the variable cost per unit.whereas fixed cost per unit decreases as the number of units produced increased and vise versa.According to this concept Mr.C gave a wrong statement.

First Understand the Variable cost and fixed cost Variable cost A periodic cost is that varies in step with the output or the sales revenue of a company. Variable costs include raw material, energy usage, labor, distribution costs, etc. Companies with high variable costs are significantly different from those with high fixed costs. This difference affects the financial structure of the company as well as its pricing and profits. This difference affects the financial structure of the company as well as its pricing and profits. The breakeven point in such companies (in comparison with high fixed cost companies) is typically at a much lower level of output, but their marginal profit (rate of contribution) is also much lower. Fixed cost A periodic cost that remains more or less unchanged irrespective of the output level or sales revenue, such as depreciation, insurance, interest, rent, salaries, and wages.

While in practice, all costs vary over time and no cost is a purely fixed cost, the concept of fixed costs is necessary in short term cost accounting. Organizations with high fixed costs are significantly different from those with high variable costs.

This difference affects the financial structure of the organization as well as its pricing and profits. The breakeven point in such organizations (in comparison with high variable cost organizations) is typically at a much higher level of output, and their marginal profit (rate of contribution)

tell me about this

i hve psted my ansr....wat,s abut u hira?

MGT402 GDB FALL2012 Solution by Masood khan and ahmed 

it may be helpful to making gdb.....

First Understand the Variable cost and fixed cost

Variable cost

A periodic cost is cost that varies in step with the output or the sales revenue of a company.

Variable costs include raw material, energy usage, labor, distribution costs, etc. Companies with high variable costs are significantly different from those with high fixed costs. This difference affects the financial structure of the company as well as its pricing and profits. The breakeven point in such companies (in comparison with high fixed cost companies) is typically at a much lower level of output, but their marginal profit (rate of contribution) is also much lower.

Fixed cost

A periodic cost that remains more or less unchanged irrespective of the output level or sales revenue, such as depreciation, insurance, interest, rent, salaries, and wages.

While in practice, all costs vary over time and no cost is a purely fixed cost, the concept of fixed costs is necessary in short term cost accounting. Organizations with high fixed costs are significantly different from those with high variable costs. This difference affects the financial structure of the organization as well as its pricing and profits. The breakeven point in such organizations (in comparison with high variable cost organizations) is typically at a much higher level of output, and their marginal profit (rate of contribution) is also much higher.




another one



Variable cost is constant in both the above table(increasing or decreasing) while variable cost is changing by increasing or decreasing the production volume,,,,but in the GDB statement variable cost varies per unit?From Handouts)>in case of production volume increased, the variable cost remains same on per unit basis and increases in total. On the other hand the variable cost remains same in per unit basis and decreased in total if the production volume is decreased. how?? can any body tell me?

I think Mr.C gave wrn statment???

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i am not agree with the satement given by Mr.C bcz when we talk about cost behavior per unit of production, variable cost per unit remains   constant.means that increase or decrease in production volume cause no change to the variable cost per unit.whereas fixed cost per unit decreases as the number of units produced increased and vise versa.According to this concept Mr.C gave a wrong statement that 

Variable cost varies on per unit of output produced, whereas fixed cost remains constant on per unit of output produced”.




Variable cost is constant in both the above table(increasing or decreasing) while variable cost is changing by increasing or decreasing the production volume,,,,but in the GDB statement variable cost varies per unit?From Handouts)>in case of production volume increased, the variable cost remains same on per unit basis and increases in total. On the other hand the variable cost remains same in per unit basis and decreased in total if the production volume is decreased. how?? can any body tell me?



any body would explain the point that according to mr c 2 jitni output produced ho gi variable cost us ky mutabiq vary kry gi jabky fixed cost constant hi rhy gi per unit ky hisab sy

to yahan pe ab jabky MR C ky mutabiq agar plant ko madrenized kia jata hy to fixed cost per unit out put produced  ky hisab sy constant rehy gi

agar kisi ko solid ans ka idea hy to just reason btaye k kun MR c is wrong i think it is true k costing mathod ko madrnized kry sy un ky un ky profit pe frq ni pary ga and according to MR A and B k agar wo koi aisa method adopt krty hain to un ki production cost high ho jaye gi ar is tra sy profit reduce.ab

Definition of 'Variable Cost'

A corporate expense that varies with production output. Variable costs are those costs that vary depending on a company's production volume; they rise as production increases and fall as production decreases. Variable costs differ from fixed costs such as rent, advertising, insurance and office supplies, which tend to remain the same regardless of production output. Fixed costs and variable costs comprise total cost.

FIXED COST

A cost that does not change with an increase or decrease in the amount
of goods or services produced. Fixed costs are expenses that have to be
paid by a company, independent of any business activity. It is one of
the two components of the total cost of a good or service, along with
variable cost.

ab in definations ky mutabiq koi btaye ga k k WHY MZR C IS WRONG

 

Mr c is wrong because wo keh raha hai k variable cost vary krti hai, according to hand outs, variable cost same rehti hai, total variable cost vary karti hai. 

"The variable cost per unit is the same amount for each unit produced whereas total variable cost increases as volume of output increases."
fixed cost tk he is right, but variable cost per unit same rehti hai. however total variable costs increase kare ge with production, since input ziada hoga (raw material). 

Mr. C is wrong. We can't agree with him. logics r the same told in the handouts. It's not necessary tht we may agree with him, I think we have to recognize the fact, the difference. What do u ppl say??????? He talked abt the variation per unit, while these changes occur in total production.

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