Initial Analysis
Examining the case study, it appears that Nozomi Saski is incorrect in her belief that the Suzuki dealership is in fact making more than $100 per sale of vehicles and thus, she should not be given the $5,000 prize money. However, the case study excludes one important component for Saski to win the $5,000, she either needs the total number of cars they dealership has sold that year or at the very least the estimated amount they are projected to sell.
Overhead and Variable Costs
Overhead costs “are based entirely on estimated data, the overhead cost applied to work in process will generally differ from the amount of overhead cost actually incurred” (Garrison, Noreen, & Brewer, 2014 p. 104). The case study states that Nozomi failed to consider the real cost of running a large dealership and for this dealership the make ready and general overhead costs per unit based on the total overhead cost divided by the number of cars sold last year. Because the overhead costs are fixed they can be reduced by selling more units. For example, If the Suzuki dealership sells 400 cars this year it is safe to the cost of overhead per unit would be higher because overhead cost is spread out through how many units a business sells. As stated by the Suzuki accountant they sold 500 units last year, …show more content…
Currently, according to the dealership the cost of make ready service is $160 and according to Saski the variable cost of make ready service is $40, which is the cause for the two different total costs. Essentially, $120 of the cost to make ready services is fixed and $40 is variable. Therefore, if Saski is correct and the cost of make ready services is only $40 than the dealership is over stating the cost of the vehicles by about $120, but they are not because the $160 cost of make ready services has two component $120 fixed and $40 variable. Essentially, Saski is not accounting for the extra $120 fixed cost that applies to cost of make ready
Examining the case study, it appears that Nozomi Saski is incorrect in her belief that the Suzuki dealership is in fact making more than $100 per sale of vehicles and thus, she should not be given the $5,000 prize money. However, the case study excludes one important component for Saski to win the $5,000, she either needs the total number of cars they dealership has sold that year or at the very least the estimated amount they are projected to sell.
Overhead and Variable Costs
Overhead costs “are based entirely on estimated data, the overhead cost applied to work in process will generally differ from the amount of overhead cost actually incurred” (Garrison, Noreen, & Brewer, 2014 p. 104). The case study states that Nozomi failed to consider the real cost of running a large dealership and for this dealership the make ready and general overhead costs per unit based on the total overhead cost divided by the number of cars sold last year. Because the overhead costs are fixed they can be reduced by selling more units. For example, If the Suzuki dealership sells 400 cars this year it is safe to the cost of overhead per unit would be higher because overhead cost is spread out through how many units a business sells. As stated by the Suzuki accountant they sold 500 units last year, …show more content…
Currently, according to the dealership the cost of make ready service is $160 and according to Saski the variable cost of make ready service is $40, which is the cause for the two different total costs. Essentially, $120 of the cost to make ready services is fixed and $40 is variable. Therefore, if Saski is correct and the cost of make ready services is only $40 than the dealership is over stating the cost of the vehicles by about $120, but they are not because the $160 cost of make ready services has two component $120 fixed and $40 variable. Essentially, Saski is not accounting for the extra $120 fixed cost that applies to cost of make ready