Segmentation Overhead An Integrated Circuit-Myassignmenthelp.Com

Question: Discuss About The Segmentation Overhead An Integrated Circuit? Answer: Introducation The first alternative projects an elevation of the selling price to $140 and the revenue incurred by the organization to $375,000. However, this would require an advertisement campaign of an estimated amount of $125,000, which would expose the business to high levels of risk in case the campaign is not successful or is not conducted efficiently. This would lead to the fall in the profitability of the firm. The second alternative that has been provided states that the sales volume increasing by the amount of 25% and variable cost by $5 per unit, the quality of the product can be enhanced. This would involve an input of promotional tools. However, the variable cost would increase, thus, decreasing the contribution per unit. Moreover, an additional profit of $75,000 would be incurred as the quality of the product has improved. The third alternative, is that the selling price if reduced by $10 per unit for the first three months then the profitability might be increased. The requirement for making a profit of $60,000, needs to be supported by the advertisement expense of $60,000. However, this proposal might lead to the loss of potential customers as they might think that the decline in price has resulted in the decline in the quality of the product. Thus, the particular proposal by the production manager is recommended. This is because this proposal leads to the increase in the product quality and the sales volume. This proposal has forecasted a profit of $75,000. The above table has been prepared in accordance to the capacity of the Tassie Company's factory that is 200000 units per year. The table shows that the utilization of the overall capacity increases the sales volume and the profitability of the firm. The selling price that has been shown in the table that is $10.80 has been obtained by the addition of the fixed cost with the variable cost and 20% mark up. The highest capacity of the organization in terms of production is 180,000 units per year. However, the current capacity is $150,000 units. It can be deduced that 10,000 units incur a profit of $2.50 per unit for accepting the government contract. Thus, the price for the first 30,000 units is $10.80 per unit and $13.30 per extra unit. Hence, the average price is $11.43. In case of activity based costing, the cost has been distributed across the activities that essentially is dependent on the time-period that has been spent in the manufacturing department. The facilitation of overhead cost pools and activity based costing results in the undertaking of suitable decisions in regards to the cost structure for increasing the profitability of the company. The method of activity based costing facilitates the identification of the direct cost in regards to the specific departments thus, the departmental hours can be easily computed. The cost pool essentially indicates the direct costs and the forecasted time-period can be utilized as the cost driver (Osadchy and Akhmetshin 2015). The process of segmentation is an important procedure that helps in the allocation of the overhead cost. This is because it facilitates the identification of the particular costs in regards to the establishment, purchase of materials and inspection and operation (Young 2015). For instance, the world famous company Toyota has efficiently resulted in the adoption of the process of segmentation of the overhead costs. This has been executed for improving the efficiency of the practices in relation to the costing techniques. The different overhead costs include selling overhead, administrative overhead, manufacturing overhead and other related overheads. A perfect example of the administrative overhead can be the office supplies that are acquired by a particular company. Thus, it can be deduced that the classification of the costs according to their respective type and category is necessary (Chow 2016). The costs related to accounting expenditures, office expenditures and audit fees will be under the domain of indirect overhead cost. The wages of the workers in relation to the handling of materials, production supplies will be categorized as variable overhead. The other advantages provided by segmentation are that the segmentation of the overhead costs results in the reduction of risks in regards to the overhead costs by the utilization of the costing process (Terpstra and Verbeeten 2014). Thus, it is evident from the above concluded paragraphs that the segmentation allows the proper identification of the costs so that they can be associated with the proper overheads thus, the allocation of the overhead costs to individual job or service can be well facilitated with the process of segmentation. References Chow, J.W.Y., 2016. Activity based costing: A case study of Raiffeisen Bank of Luxembourg (No. 12). EIKV-Schriftenreihe zum Wissens-und Wertemanagement. Osadchy, E.A. and Akhmetshin, E.M., 2015. Accounting and control of indirect costs of organization as a condition of optimizing its financial and economic activities. International Business Management, 9(7), pp.1705-1709. Terpstra, M. and Verbeeten, F.H., 2014. Customer satisfaction: Cost driver or value driver? Empirical evidence from the financial services industry. European Management Journal, 32(3), pp.499-508. Todorovic, M., 2016. TIME-DRIVEN ACTIVITY-BASED COSTING AS A TOOL OF BUILDING AN INTEGRATED MANAGEMENT SYSTEM. Facta Universitatis, Series: Economics and Organization, pp.45-57. Young, S.P., Karp, J. and Hart, M.J., Xilinx, Inc., 2015. Method and apparatus to reduce power segmentation overhead within an integrated circuit. U.S. Patent 9,058,454.