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Class 3 F 11

# Class 3 F 11 - Cost Management Tools Part 2 Price = TC 0.2...

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Cost Management Tools Part 2

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2 Price = TC + 0.2 P TC = 0.8 P Quantity (Gallons) Price 1000 \$750,000 2000 \$1,125,000 4000 \$1,875,000 Total FC + VC/Unit X # Units = .8 P FC + VC X 2000 = 0.8 X \$1,1250,000 FC + VC X 1000 = 0.8 X \$750,000 FC = \$300,000 VC / Unit = \$300 0.8 P = \$300,000 + \$300 x 2500 = \$1,050,000 P = \$1,312,500
Revenue (Price X Volume) - Cost of Goods Sold Direct Labor Direct Material Factory Overhead Gross Profit - Other Expenses General, Sales & Administrative Costs Research and Development Costs Profit before Taxes Procurement Price / Cost Analysis Tools Index Analysis Variable Costs Cost-Vol-Profit Analysis Fixed Costs Quantity Discount Analysis

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In the U.S., a useful index is the Producer Price Index (PPI). What is the Producer Price Index? How is it used by buyers? A price index measures the change over time in the price of a product or service versus starting price at time ‘t = 0’. Index Analysis 1 Price = \$1500 Index = 100 In 1991 Prices go up 10% to \$1650 1991 Price = \$1650 Index = 110
Family of indexes that measures the average change over time in the selling prices received by domestic producers of goods and services. PPI’s measure price change from the perspective of the seller Producer Price Index

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http://www.census.gov/epcd/www/naics.html

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www.bls.gov/data/

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Calculate the Percentage Change in the PPI End - Beginning Beginning = 241.3 - 215.8 215.8 = Change 25.5 215.8 = 0.118 11.8%

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What Should You Pay? Producer Price Index Case Study
Step 3 – Calculate the Percentage Change in the PPI 1 \$1,000,000 / 1000 Tons = \$1,000 per Ton 2 \$ 1,350.000 / 1200 Tons = \$1,125 per ton Step 1 – Calculate the price per unit \$1125 - \$1000 \$1000 = \$125 \$1000 = 12.5% Step 2 – Calculate the Percentage Increase in Price Paid = 241.3 - 215.8 215.8 25.5 215.8 = 0.118 11.8%

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Revenue (Price X Volume) - Cost of Goods Sold Direct Labor Direct Material Factory Overhead Gross Profit - Other Expenses General, Sales & Administrative Costs Research and Development Costs Profit before Taxes PPI Fixed Costs Procurement Cost Analysis Tools Variable Costs Quantity Discount Analysis Cost-Vol-Profit Analysis
PPI 2

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Calculate change in PPI Polyethylene Resins PPI 2004 143 PPI 2003 126 17 13.5% Increase in PPI
Only costs that change are escalated Material Costs Total \$100 Change New Cost Poly Res \$50 13.5% \$56.75 Misc \$50 0.0% \$50.00 \$106.75

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