ARBUS102 Lecture Notes - Lecture 10: Variable Cost, Costco, Fixed Cost
17 Apr 2016
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Approach to decision for dropping on retaining a segment: 1st, contribuion margin of segment: (sales & all variable costs, direct material, direct labour, variable overhead, Commissions, fringe beneits for direct labour, sales commissions, shipping usually variable) 2nd, traceable ixed costs disappear: (local ixed costs product line manager, fringe lengths of local salaries, insurance, local rent) 3rd, allocated costs remain head oice changes, purchasing department, general overhead. 4th, depreciaion of equipment with no resale value remains. 5th, calculate contribuion margin lost ixed costs lost: if posiive, keep segment, if negaive, drop segment. Going back to last class: keep halifax. Marine supplier deciding to keep or sell its pump division. Operaing (loss: allocated based on machine hours, allocated based on sales $ = 150,000 sill: if you sell, ,000 goes away, you want to keep the segment. Situaion: manufacture making inished product that has many component: some parts are made; some parts purchased; managers faced with make or buy decision.
