2249 Words May 13th, 2013 9 Pages
Competition Bikes Finical Analysis
Dan Petersen
WGU – JET2 Finical Analysis Task 4

A.
1.
To: Vice President
This report has been prepared to argue the case that the company’s current costing method should be changed to the activity based costing method. This report will review; the difference between traditional based costing and activity based costing; traditional split and allocations with activity based costing; and discusses the breakeven point for Competition bikes Inc. with regards to sales units and sales dollars for both CarbonLite and Titanium bikes.
The first item at hand is what kind of detail does activity based costing provide that is different than traditional costing?
The main difference between
Another item it is used for is when the company is planning to expand operations, the CVP analysis can help estimate what production will be needed to cover those expansion costs. CVP analysis examines changes in profits in response to changes in sales volumes, costs and prices. Accountants often perform CVP analysis to plan future levels of operating activity along with the volume of sales needed to achieve a targeted level of profit. (Hilton, R.W., 2009). The basic cost volume profit equation starts with a basic profit equation: Profit = Total revenue – Total costs. By separating costs into variable and fixed categories, the expression of profit is now: Profit = Total revenue – Total Variable costs – Total fixed costs. Once that is understood the contribution margin can be found. The contribution margin equation is the total revenue – total variable costs.
It is also important to note that if the company is offering different products for sale, each product/unit will need to be figured for the contribution margin per unit. The equation for contribution margin per unit is: Selling price per unit – variable costs per unit.
Titanium: 900-679=221 CarbonLite: 1495-1384=111
Thus the profit equation is now rewritten in terms of the contribution margin per unit assuming that the selling price and variable costs per unit are constants is:
Profit = Selling price per unit x Quantity of product sold – Variable costs per unit x Quantity of

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