# Lec09 - Managerial 2071 Lecture 09: 02/07T 1. Todays plan...

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Managerial 2071 ©Haijin Lin 1 Managerial 2071 Lecture 09: 02/07T 1. Today’s plan (1) Overview of the art of product costing (2) 5-7 (3) 5-1 (in appendix) 2. Overview of the art of product costing (1) Recall Ralph’s Big Firm C(100, 120) = Minimize 100K + 150L 1 + 175L 2 Subject to 1 KL 100 2 KL 120 200 K - Solution to the above problem K = 200 MC(q 1 ) = 150 L 1 = 50 MC(q 2 ) = 210 L 2 = 72 - How can we estimate the cost for each product? - easy to answer, if the cost can be separated (2) there is no unique answer when joint costs are present - identify cost pools 150L 1 = 150(50) = 7,500 (direct identification, assigned to q 1 ) 175L 2 = 175(72) = 12,600 (direct identification, assigned to q 2 ) 100K = 100(200) = 20,000 (?) - solution 1: evenly split #1 #2 Labor Cost 7,500 12,600 Allocated Capital Cost 10,000 10,000 Total Cost 17,500 22,600 Unit Cost \$175 \$188.33

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Managerial 2071 ©Haijin Lin 2 - solution 2: based on labor cost #1 #2 Labor Cost 7,500 12,600 Allocated Capital Cost 7,463 12,537 Total Cost 14,963 25,137 Unit Cost \$150 \$209.48 - solution 3: based on production quantity #1 #2 Labor Cost 7,500 12,600 Allocated Capital Cost 9,091 10,909 Total Cost 16,591 23,509 Unit Cost \$165.9 \$195.91 - solution 4: treat capital cost as period cost #1 #2 Labor Cost 7,500 12,600 Allocated Capital Cost 0 0 Total Cost 7,500 12,600 Unit Cost \$75 \$105 (3) remarks - Economists can identify total costs and marginal cost - as in Ralph’s consulting firm (in Table 5.1), lots of variety and ambiguity
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## This note was uploaded on 06/05/2011 for the course ACG 2071 taught by Professor Sumbiznatch during the Spring '06 term at University of Florida.

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Lec09 - Managerial 2071 Lecture 09: 02/07T 1. Todays plan...

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