2. Introduction to Costing Hanif Kanjer Dean, Rustomjee Business School
Classification of Costs E.g.2-20, Page 79, Assembly of cars at New United Motor Manufacturing Inc. NUMMI, a jv between General Motors and Toyota Assemble two types of cars: Corolla and GeoPrisms Direct Costs Indirect Costs • Cost of tyres used on Geoprism • Annual Awards for Corrolla suppliers • Freight Costs of Corrrolla engines shipped from Toyota City, Japan to Fremont, California Variable Costs • Electricity costs for NUMMI plant • Wages to temporary assembly line workers • Salary of Public Relations Manager Fixed Costs • Salary of Engineer who monitors design changes on Geo Prism • Annual Fire-insurance policy cost
Variable Costs, Fixed costs, Total Costs E.g. 2-21, Page 79 Bernard Holmes pet transporter business. Choose between different van rental options. Which Plan should Holmes choose to do 1,000 miles, 1,500 miles, and 2250 miles of driving? Best Plan for 2250 miles Best Plan for 1000 miles Best Plan for 1500 miles Variable Costs + Fixed costs = Total Costs
Decision-making, Total and Unit Costs - 1 E.g. 2-27, Page 81,
Decision-making, Total and Unit Costs - 2 E.g. 2-27, Page 81,
Decision-making, Total and Unit Costs - 3 E.g. 2-27, Page 81,
Significance of Unit Costs versus Total Cost Unit Costs - Caution As quantity produced increases, the fixed costs are divided over a larger production quantity, and hence unit costs would go down.
DV: a,g,e • IV: h,c • DF: d • IF: b,f