me 2605 -performance and cost analysis amrish gupta li hong ramesh khanal xiong jie intec...
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ME 2605 -Performance and Cost analysis
AMRISH GUPTALI HONG
RAMESH KHANAL XIONG JIE
INTEC ENTERPRISES
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Product portfolio
Value Chain
Milk CanKitchen Utensil
Pump&MotorsAgriculture Equipment
Research and
Development Procurement Assembly
Quality Control
PRODUCTION Selling & administration
Fasteners
Cost centre, profit center, invest centre
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Managerial Strategy
• Price taker facing long term product-mix decisions – Activity based profitability analysis essential.
• Target costing – non-customized high sales volume products.– Price dominates markets.
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Second Stage AllocationFirst Stage Allocation
Traditional approach
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Assigning to final product
Traditional approach
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Second Stage allocation
ABC Approach
First Stage allocation
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Assigning to final product
ABC Approach
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Cost Comparison
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Break Even Analysis
Product line A
0
500000
1000000
1500000
2000000
2500000
0 5000 10000 15000 20000
quantity
amo
un
t FC
TC
Revenue
Product line B
0200000400000600000800000
10000001200000140000016000001800000
0 5000 10000 15000 20000
Volume
Am
ou
nt FC
TC
Revenue
Product line C
0
200000
400000
600000
800000
1000000
1200000
1400000
0 5000 10000 15000 20000
Volume
Am
ou
nt Fc
TC
Revenue
Sensitivity to Volume
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1630.0
1640.0
1650.0
1660.0
1670.0
1680.0
1690.0
1700.0
1710.0
1720.0
-12% -7% -2% 3% 8%
Th
ou
san
ds
% change
To
tal o
ve
rhe
ad
Receiving Cutting & grinding
Machining Gen Assembly
Selling and Admin
Sensitivity to total over head
Break Even Analysis