Electrical Engineering
Techniques college
2021/2022
Cost Account Methods
(Break Even Analysis Method)
For
Students of Fourth Stage
Computer Department
Department of computer Engineering
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Electrical Engineering
Techniques college
2021/2022
1. Overview
a. Target Population: For students of stage of second and fourth stage in technical
Colleges and institutes in foundation of technical education.
b. Rationale: Costing means looking at the amount to be spent on selling a product,
running a production process or delivering a service. This mode unit introduces of
classification of costs according variability in order to select the suitable method to
determine the selling price.
c. Central Ideas: The basic purpose of classification of costs to determine the most
suitable method of accumulating and allocating costs.
d. Objectives: The student will be able after finishing lecture on:
-
Classify the cost according the variability.
-
Determine the BEP and its effect on the costs.
2. Pre-Test:
1. The examples of semi-variable costs include; ---------, -------- and ---------.
2. The ------------ method is used to calculate the cost according the variability.
3. Material cost is considered from variable costs. State True or False
4. Define the term „Fixed cost‟.
5. For the following data:
Fixed cost = 400,000 ID
Variable cost per unit = 20 ID
Selling price per unit=100 ID
Estimating profit = 300,000 ID
a- Calculate sales value.
b- Calculate the contribution if the total sales 950,000 ID.
Note: Check your answers in “Answer Keys” in end of mode unit. If you obtain 75% of
solution, you cannot need to this mode unit. If your answer is poor, you will transfer to
next page.
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Electrical Engineering
Techniques college
2021/2022
3. Theory:
Introduction
The cost is classified by variability to:
1. Variable Costs
-
Variable Costs: are costs which do vary directly with the level of output or
production. Sometime are called direct costs.
-
Costs that change in total, directly in proportion to changes in the level of activities
(volume).
-
The unit cost remains the same over a wide range of volume (referred to as the
relevant range).
-
Relevant Range is the range of activity (production volume) within which variable
unit costs are constant and fixed costs are constant and fixed costs are constant in total.
In this range, the incremental cost of one additional unit of production is the same.
-
Examples include direct materials, direct labor, and part of manufacturing overhead.
2. Fixed Costs
-
Fixed Costs: are costs which do not vary directly with the level of output or
production. Sometime are called indirect costs.
-
Costs that do not change in total regardless of changes in activity.
-
The unit cost decreases as volume increases.
-
Examples include rent, taxes, and insurance on manufacturing plant.
3. Semi-variable (Mixed) Costs
-
Costs that contain both variable and fixed costs.
-
Examples include: light, heat, and power.
Breakeven Point: It is the relationship between a variable cost, fixed cost and volume of
production (sales). No profit or loss at the breakeven point.
Benefits of BEP
1. Forecasting profit at any volume of sales.
2. Giving clear image about relationship between costs and sales per unit.
3. Help management to make decisions.
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Electrical Engineering
Techniques college
2021/2022
4- Self-Test:
1. The technique used a variable and a fixed cost is called -----------.
2. Define the term „variable cost‟.
Breakeven Point (BEP) Methods
1. Equation method
- Operating profit = Sales - Total Fixed Costs - Total Variable Costs
(Quantity x Unit Selling Price) (Quantity x Unit Variable Cost)
Because at the breakeven point operating profit is zero, the equation can be as follows:
- Sales = Total Fixed Costs + Total Variable Costs
Where
is a fixed cost,
is a variable cost and
is total sales.
Ex1:For the following data:
Fixed cost = 100,000 ID
Variable cost per unit = 300 ID
Selling price per unit=500 ID
1. Find number of unit (Units of Production) to verify BEP.‫جد عدد الىحداث الىاجب بيعها لتحقيق وفطت التعادل‬
2. Find BEP. ‫جد وقطت التعادل‬
3. Find number of unit to obtain on operating profit of 1,000,000 ID. ‫جد عدد الىحداث الىاجب بيعها لتحقيق‬
‫مليىن ديىار ربح‬
4. Find the operating profit at production and selling 2,000 units.‫جد الربح المتحقق عىد اوتاج وبيع الفيه وحدة‬
Ans:
1. Operating profit = Sales - Total Fixed Costs - Total Variable Costs
Operating profit = 0 at BEP
Sales = Total Fixed Costs + Total Variable Costs
2.
3. Operating profit = Sales - Total Fixed Costs - Total Variable Costs
4. Operating profit = Sales - Total Fixed Costs - Total Variable Costs
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Electrical Engineering
Techniques college
2021/2022
(
)
3. Manufacturing company sells coats at 100 $ per unit .The variable cost is 30 $ per unit and total
fixed are 21,000 $ require.
a. Find Units of Production.
b. What is the breakeven point?
To calcu late sales value )‫ (قيمت المبيعاث‬at giving estimating profit, we used the following equation:
Where
is estimating profit.
To calculate contribution )‫(المساهمت‬, we used the following equation:
(
Where
is contribution,
is total sales and
)
is selling price per unit.
Ex2: For the following data:
Fixed cost = 400,000 ID
Variable cost per unit = 20 ID
Selling price per unit=100 ID
Estimating profit = 300,000 ID
a- Calculate sales value.
b- Calculate the contribution if the total sales 950,000 ID.
Ans:
1.
2.
(
)
(
)
2. Chart method:
Ex3: For the following data:
Fixed cost = 40,000 ID
Variable cost = 20,000 ID
Sales =100,000 ID
Calculate BEP by using chart method.
Ans:
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Electrical Engineering
Techniques college
2021/2022
4. To calculate contribution, the following equation used
. State True or False
5. Draw the BEP chart with labeling.
5. Post- Test
1.
2.
3.
4.
5.
a.
b.
c.
d.
Define the term “BEP”.
Examples of variable cost include rent, taxes, and insurance on manufacturing plant.
Costs that contain both variable and fixed costs are called ----------.
List benefits of BEP method.
For the following data:
Fixed cost = 60,000 ID
Variable cost = 100,000 ID
Sales =200,000 ID
Calculate BEP
Determine BEP at increasing in selling price 20% of sales value.
Determine BEP at increasing 10% of fixed cost.
Determine
BEP atyour
decreasing
20%
variableKeys”
cost. in end of mode unit.
Note: Check
answers
in of
“Answer
Note: Check your answers in “Answer Keys” in end of mode unit.
6. References
1. J.R. Meredith and S.J. Mantel “Project Management”, J. Wiley & Sons, 1995.
2. http://www.projectmanagement.com/main.htm
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Electrical Engineering
Techniques college
2021/2022
3. Mike Holt, “Applying Overhead and Determining Break-Even Cost” Mike Holt
Enterprises, Inc,2001, www.ecmweb.com
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Electrical Engineering
Techniques college
2021/2022
Answer Keys
Pre- Test
1.
2.
3.
4.
light, heat, and power.
BEP method.
True.
Fixed Costs: are costs which do not vary directly with the level of output or production.
Some time are called indirect costs.
5.
(
)
(
)
Self-Test
1. breakeven point
2. Variable Costs: are costs which do vary directly with the level of output or production.
Sometime are called direct costs.
3.
Ans:
1.
This means that to cover 21,000 $ of fixed costs, 300 units must be sold to break even.
2.
OR
4. False.
5.
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Electrical Engineering
Techniques college
2021/2022
Post- Test
1. Breakeven Point: It is the relationship between a variable cost, fixed cost and volume of
production (sales). No profit or loss at the breakeven point.
2. False.
3. mixed costs
4.
- Forecasting profit at any volume of sales.
- Giving clear image about relationship between costs and sales per unit.
- Help management to make decisions.
5.
(
)
(
(
)
)
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