Class 2 F 11 Student

Class 2 F 11 Student - 1 PRICE / COST ANALYSIS Part 1...

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Unformatted text preview: 1 PRICE / COST ANALYSIS Part 1 Objective Explore Basic Techniques used to Analyze Costs of Purchased Materials and Services 2 How do Companies assure that they get the best price for what they buy? 3 Competitive Bidding Quality, Service, Delivery Capability, etc are equal Supplier B $0.85 / Unit Supplier C $1.11 / Unit Supplier A $0.90 / Unit What assurance does the buyer have from this approach? 4 Goals of Price/Cost Management Develop accurate price/cost information to enhance negotiating effectiveness Drive continuous price/cost improvement Determine type of supplier relationship 5 What are the elements of cost that make up the price of a product or service? 6 Characteristics of Cost Elements Total FIXED COSTS Total Cost Examples of Fixed Costs CEO and other executive Salaries R&D Budget Cost of Human Resources Dept. and other corporate support services Sales and Marketing expenses Building Rent and other lease payments Total Quantity 7 Characteristics of Cost Elements FIXED COSTS PER UNIT Total Quantity Cost / Unit Once the second unit is produced, the fixed costs are allocated to both units. Therefore the fixed cost per unit that is allocated is cut in half. At 1 unit of production, all fixed costs are allocated to the single unit. 8 Characteristics of Cost Elements TOTAL VARIABLE COSTS Total Cost Total Quantity If variable cost / unit is $1.00 and we produce 2 units, then total variable costs are $2.00. If variable cost / unit is $1.00 and we produce 1 unit, then total variable costs are $1.00. 9 Characteristics of Cost Elements VARIABLE COSTS PER UNIT Total Quantity Cost / Unit Examples of Variable Costs Direct production labor Direct Materials Fuel and power 10 Revenue- Cost of Goods Sold Direct Labor Direct Material Factory Overhead- GS&A Costs- R&D Costs Profit before Taxes Fixed Variable What are the characteristics of the cost elements that make up the price of a product or service? 11 What is the impact on total cost per unit when...
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Class 2 F 11 Student - 1 PRICE / COST ANALYSIS Part 1...

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