Case Study: The Reputation Telephone Organization
Assessment # 3 – case study you, the Respect Telephone example assesses earnings of their subsidiary firm Prestige Service plans and its economic viability to carry on operating.
Part A – Main learning effects of the theme
Classifying costs as variable, fixed or semi-variable
Costs can be categorized into 3 different groups, namely:
* Changing costs, which vary in direct percentage to a certain degree of activity or possibly a cost drivers, * Fixed costs, which are not inspired by the amount of activity, except if there is a significant change in the amount of activity, 5. semi-variable costs, which are a mix of fixed and variable costs.
Each of these costs can influence the overall earnings differently which is why managers ought to maintain track of these types of costs. It is necessary to note the above mentioned costs will be relevant for a given selection only outside of which expense behavior cannot be estimated accurately.
The concept of contribution analysis and breakeven point
Managers are required to perform contribution analysis because this worth assists in identifying how much sales of any product or service a small business has to accomplish in order to a) breakeven and b) be profitable. Based on these ideals, managers can perform out may be the sales targets are reasonable and possible or certainly not. Incase they may be not, it might be possible to create changes to some costs or perhaps other factors that influence costs, to make the organization viable. Such as: bringing down several variable costs or elevating sales through discounts. These estimations can be significantly difficult when a business produces and sells multiple products and / or solutions as correct allocation of costs to be able to determine break-even point and contribution analysis can prove to be tough.
Romance between cost, volume and profit
Managers are required to tightly monitor numerous costs (which may sometimes not always be under their particular...