SUMMARY REPORT

Summary Report: Competition Bikes Inc.



Summary Report: Competition Bikes Inc.

Summary Report to the Vice President Competition Bikes Inc.

According to your suggestions and orders, the study of the costing approach for the company was conducted. The activity based costing analysis was also undertaken in a company plant. Once the analysis was done, the break analysis calculations were also carried out, along with target profit projections. It is recommended that the company should adopt Activity Based Costing method, rather than the traditional costing method. The deployment of Activity Based Costing system is supported by the Activity Based Costing analysis by the company. The unit cost comparison provides quite an interesting insight of the process. The Titanium Bike, whose traditional unit cost is $713, will have a unit cost of $656, if Activity Based Costing is deployed. Hence, there is a decrease of $ 57, which is beneficial for the performance of the company. On the other hand, the CarbonLite category, whose unit cost was $1359 with traditional costing, shows unit cost under activity, with a unit cost (using ABC) to be $ 1460. When we look at the sales mix, San Diego Plant Sales Mix, there are 900 units of Titanium, and 500 units of CarbonLite, the following table shows the analysis.

 

Titanium

CarbonLite

Total

Units

900

500

 

Traditional Unit Cost

$713

$1359

 

Production Cost

$641,700 $679,500 $1,321,200

ABC Unit Cost

$656

$1,460

 

Production Cost $590,400 $730,000 $1,320,400

Difference $(800)

The above table clearly suggests that the production cost has decreased considerably by the use of ABC costing method. This is a positive sign for the company. The overall cost of production can decrease more if more units of Titanium bicycle are sold. Additionally, we can see that the cost comparison of Traditional Versus ABC approach shows good savings on part of Titanium brand, and excess costs in relation to Carbonlite brand.

Approach

Titanium

Carbon

Total

Traditional

641320

679380

1320700

ABC

590715

729985

1320700

Therefore, the ABC approach will further assist to connect our costs, according to volumes and activity, rather than pre-established standards of the past.

Cost-Volume-Profit Analysis

CVP-analysis allows us to understand the purpose of analysis and shows how important it is to understand the behavior of costs, i.e. costs of the various responses of influence to assess the effects of various management decisions. Competition bikes increased fixed cost of $50000 will had to be offset by additional unit sales of 801 product units, comprising Titanium and Carbonlite. The increase sales volume would translate into increased profits for the company.

Break-Even Analysis

The ...