Table of Contents
Costs
Cost Structures
Fixed Costs
Variable Costs
PPT Slide
PPT Slide
Variable costs linear in output:
Variable costs quadratic in output:
Next Distinction
Marginal Costs
What is the relationship between average and marginal costs?
Cost Categories
Returns to scale
Returns to scale & cost structure
Examples of scale economies & difficulty of new competition
Dynamic Changes in Costs--The Learning Curve
The Learning Curve
Dynamic Changes in Costs--The Learning Curve
Dynamic Changes in Costs--The Learning Curve
Dynamic Changes in Costs--The Learning Curve
Dynamic Changes in Costs--The Learning Curve
Economies of Scale Versus Learning
Dynamic Changes in Costs--The Learning Curve
The Learning Curve in Practice
The Learning Curve in Practice
The Learning Curve in Practice
The Learning Curve in Practice
How do cost concepts relate to pricing?
Breakeven:
PPT Slide
PPT Slide
Leverage
PPT Slide
PPT Slide
PPT Slide
Applications
Windows 95 Facts:
Windows 95 Questions:
PPT Slide
Microsoft needed to sell 65 million units @ $35 to recover its fixed investment in the development and promotion of Windows. At $30, it had to sell 77 million units.
Operating Leverage for Microsoft Windows
PPT Slide
Near the breakeven point, small fluctuations in output induce large fluctuations in profits. Thus if Q = 70 million copies, operating leverage is approximately 17 (a 1% increase in sales leads to a 17% jump in profits) If output expands to Q = 90 million copies, then operating leverage is 3.7 A given fluctuation in sales induces a smaller proportionate increase in profits.
Cost Allocation
PC Computer Company (PCCC) has two operating divisions (1) Desk Top (DT) (2) Lap Top (LT) PCCC corporate overhead cost = $20m/year composed of: - interest on corporate debt - salaries of the President, CEO, and CFO - corporate promotional costs - central office costs (accounting, HR, management, etc.)
Divisional costs
Consider the following questions:
Answers:
PPT Slide
Answer:
Economic & Accounting Approaches to Costs
Table 2 Income Statement for Product A (1000s)
Table 3 Classifying Product A Costs into Variable and Fixed (1000s)
Table 4 Reconfigured Income Statement for Product A Using a Variable Budget Format (1000s)
Important differences between tables 2 and 4
Operating Leverage
Other Cost Concepts
Opportunity Cost
Sunk Costs
TV Listing Guide
PPT Slide
Culver City
PPT Slide
Des Moines
Cheyenne
PPT Slide
PPT Slide
Rules for Using Cost Data
Activity - Based Costing:
Changing Fixed to Variable Costs
Outsourcing as Business Model
What does the corporation do?
Trend Spreading
Motor Industry
Issues Raised
Dematerialization of the Corporation
|