Essay Variable Cost and Company

Submitted By jeerish14
Words: 2533
Pages: 11

[Type the document title] | [Type the document subtitle] | | [Type the abstract of the document here. The abstract is typically a short summary of the contents of the document. Type the abstract of the document here. The abstract is typically a short summary of the contents of the document.] | | 13477 | [Pick the date] | |

Massey Bronson PLC
Introduction
Massey Bronson PLC is an established manufacturer of agricultural machineries in Britain. In the last decade the company has established foreign subsidiaries in countries such as Brazil, Argentina, India, Indonesia and Australia due to competition from other American and German companies. The Establishment of those foreign subsidies have help Massey Bronson Company in cutting a lot of cost such as labour, transportation cost and have also been beneficial as the company is well-known in many other countries. This strategy of geographical diversification has been very successful as 80% of the company’s profits are earned by the operations of these foreign subsidiaries.
We will analyse budgeted profit and loss in different scenario as per the case study through the Variable costing method.
Variable costing method varies with the production cost. More the cost of production more will be the variable cost and vice versa. Besides, under such costing method it ignores the Fixed Overhead. Graph of variable cost
Some advantages of using such a method are as follow: * While using the Variable costing method, changes in inventories does not affect the profit for a period of time and at the same time other things stays unchanged such as selling price and cost etc. With Variable cost method profit moves in the same direction as sales. * When variable costing method is used, its data makes it easier to estimate the profitability of the goods and services and also other parts of the company such as customers and inventories. * While using Variable costing method, it shows the profits or loss after all expenses such as bills etc have been paid for the accounting period. Even though the company have not received revenue for the products manufactured as some could still be in inventory, it shows that all the expenses have been paid for that particular period and when the finish product is sold from the inventory it will result in a surplus of income. Section A | | | | | | | | | | | | | | Budgeted Profit and Loss for the year ending 31.12.12 | Descriptions | Units 000's | Weeks | Machines | Rupiah 000's
Total | | | | | | | | Sales | | | 570 | 50 | 125 | 3,562,500 | Subsidies | | | 30 | 50 | 125 | 187,500 | Sales revenue | | | | | | 3,750,000 | | | | | | | | Less Variable cost of Production | | | | | | | | | | | | | Direct Material | 200 | | | | | Direct Labour | 200 | | | | | Other Variable OH's | 90 | | | | | Total Variable overhead | 490 | 125 | 50 | (3,062,500) | Contribution | | | | | | 687,500 | Less Fixed Overhead | | | | | (400,000) | Budgeted Profit | | | | | | 287,500 |

This section is concern about the budgeted profit and loss account for 12 months of Massey Bronson PLC by ignoring the threat of strike. As per above assumption that direct material, direct labour and other variable overheads remaining the same, the budgeted profit as per the scenario of section A is Rs 287,500,000

Section B | | | | | | | | | | | | | | | | Budgeted Profit and Loss for the year ending 31.12.12 | Descriptions | Units 000's | Weeks | Machines | Rupiah 000's
Total | Sales | | | | 570 | 50 | 125 | 3,562,500 | Subsidies | | | | 30 | 50 | 125 | 187,500 | Sales Revenue | | | | | | 3,750,000 | | | | | | | | | Less variable cost of production | | | | | | | Direct Material | | 200 | | | | |…