a) Define economies of scale and diseconomies of scale and show these.pdf

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a) Define economies of scale and diseconomies of scale and show these concepts graphically. Discuss the difference between long-run and short-run cost curves. b) Discuss at least two reasons as to why a physician-firm wouldn?t find it cost effective to expand its size indefinitely. c) Referring to the Gaynor and Gertler (1995) study, explain one way in which a physician-firm might try to limit diseconomies of scale. According to the study, is this method effective? Explain. Solution Hi, a) Economies of scale refers to increase in output, or scale of operation which leads to decrease in cost per unit of output as fixed costs are spread out over more units of output. Diseconomies of scale are the forces that cause larger firms and governments to produce goods and services at increased per-unit costs. For example, if in a product required both product X and product Y, diseconomies of scale might occur if product Y is produced at a slower rate than product X ---- b) Physcian firm will not find it cost effective to expand size because: c) The diseconomies of scale can be improved through Economy of scope is typically linked to the phenomenon in which unit cost decreases when the number of different outputs increase.

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Classmate A Learning Outcomes In Chapters 5 and 6, we have learned about the cost behavior patterns and process costing in an organization. It considered that the cost behavior patterns and process costing in accounting decisions. Cost behavior patterns define how the organization and operating expenditures change or remain the same through dissimilar events. Practices can be changed, particularly while changing the production levels or sales volume within a business. It may rise in fixed, variable, and mixed expenditures. For example, let's assume that the cost of direct material of a bike company for each bike is $40. If the motorcycle unrestricted made one bike, the total variable price for natural materials is around $40. If the bike company made two bikes, the total variable cost becomes double that is $80. It shows that the variable cost mainly changes in percentage to change in the volume of activity. If the production becomes double, then total variable cost also double, and the cost per unit remains similar. The term variable costs must define the full price with the variations in activities, not the price per unit. In chapter 8, we also learned about how united airlines fight to regulate costs. United Airlines is considered the second primary air carrier in the world. The industry study that the airlines had high fixed prices, making it hard for the business to cut prices rapidly in line with its deduction in income. It also shows that there is difficulty in finding the fixed costs. The fixed expenses are a significant element of total operating expenditures, making it hard for airlines to create short-term cuts in spending when income reduces. It seems that the variable, fixed, and mixed expenses are essential for quick decision-making and are used for a particular period. The appropriate variety is the range of actions for which cost behavior patterns are like to be correct. In chapter 9 it has been discussed the process costing in production costs. Process costing is an introductory section in production costs because process costing defines the price of each product made as similar to the price of every other product. It seems that a desk company produces desks, and it maintains a benefit over it that their participants made desks in large quantities, that is 4000 to 8000 desks per month, with the help of globally accepted designs. It permits the business to purchase material in bulk, which results in a discount on costs from suppliers. The same desk is made for all the consumers; as a result, desk products can limit the production procedure to two processing sections: assembly and finished. New participants recently started producing the same desk, and the desk company worried whether the desk production price is reasonable. The above example shows that it is hard to make the production process successful without proper technique costing. The managers can use cost behavior patterns while making decisions because it helps ...

Classmate ALearning OutcomesIn Chapters 5 and 6, we have

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45Spring 2010 • Vol. 25, No. 1 Cost Center Practices in Germany and the United States: Impact of Country Differences on Managerial Accounting Practices Kris Portz, St. Cloud State University John C. Lere, University of Wisconsin—Milwaukee Abstract As business becomes increasingly global, it is important for managers to appreci- ate that practices that work well in one country may not work as well in other countries. This article compares cost center practices under Grenzplankostenrech- nung (GPK), a common approach to cost accounting in Germany, and typical cost center practices in the United States. Differences between Germany and the United States on Hofstede’s uncertainty avoidance dimension and in workforce and management education provide possible explanations for differences in the responsibility assigned to cost center managers between Germany and the United States. Differences in cost center practices concerning classification of costs, mea- sures to use when considering changes in costs, and the size and scope of the cost center between Germany and the United States all support these differences in cost center manager responsibility. Keywords: cost centers, German cost accounting, Hofstede, responsibility accounting Introduction Although business is global, differences in countries may mean that the practice of business is not universal. Certain country differences can impact the effectiveness of managerial accounting practices and, as a consequence, af- fect the appropriateness of the practices. These country differences include differences in culture, defined using Hofst- ede’s taxonomy (2001), and workforce and management education, which are discussed in the present paper. Failure to recognize the impact of country differences on the appropriateness of managerial accounting practices may lead to a number of dysfunctional actions. A company may benchmark against the wrong set of companies. Managers and accountants may accept “one size fits all” solutions which do not fit all situations. Companies may implement home- country practices in subsidiaries located in countries where the home-country practices will be ineffective. The last de- cade’s growth in international managerial accounting research (Haka and Heit- ger 2004, 21) is a sign of the potential importance of recognizing the impact of country differences on differences in managerial accounting practices. This article considers the impact of country differences on differences in cost center practices between Germa- ny and the United States. The goals of the article are to 1. describe cost center practices that are an important part of Grenzplankostenrechnung (GPK), a common approach to cost accounting in Germany, 2. contrast these practices with cost center practices commonly employed in the United States, and 3. offer possible empirically testable explanations for these major differences in practices based on cou.

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Part I - Product vs Period CostMilestone One, Part IProduct CostsN/BMaterials- cedarproducts costsMaterials-plasticproducts costs are those costs that go into the determination of costs of goods manufactured during Factory worker laborthe manufacturing process as either direct materials or labor and as manufacturing overheads rather factory Materials -indirectoverheads.These costs form part of the cost of the ultimate product produced. They majroly fall into three categoriesFactory depreciationdirect materialsFactory utilitiesdirect laborFactory maintenance and repairsfactory overheadsPeriod Costsperiods costsShipping($2.25/each)Sales commission ($2.00/unit sold)Are costs that do not go into the determination of the cost of good manufactured during the manufacturing processOffice rentThey are expensed in the period in which they are incurred and as such do not form part of the product costs.Advertisingthese costs fall into the following categoriesLiability Insuranceselling and administrative costsOffice depreciationOffice salaries Part I - CostsMilestone One, Part IIUse Table I on the MDE Manufacturing Budget to complete your calculations.50,000TotalsTotalsUnitsBudgetActualSales Price per Unit$ 2124Variable CostsMaterials - Cedar225,000248,160Materials - Plastic37,50037,741Factory Worker Labor300,000332,760Materials - Indirect3,0002,585Shipping ($2.25/ea)112,500105,750Sales Commissions ($2/unit sold)100,00094,000Variable Cost per Unit1617Contribution Margin54Fixed CostsFactory Depreciation78,00078,000Factory Utilities12,00012,000Factory Maintenance and Repairs5,0004,500Office Rent12,00012,000Advertising20,00020,000Liability Insurance5,0005,000Office Depreciation1,0001,000Office Salaries48,00048,000Total Fixed Costs181,000180,500Using Budgeted AmountsBreakeven Point - Fixed Costs181,000Breakeven Point - 36,200Contribution Margin5.00Using Actual AmountsTotal Actual fixed costs180,500Units at Current Sales Price45125 + 10,000 profitcontribution margin4.00Using actual amountsActual fixed costs+profit190,50047625.00New Contribution Margin4.05 + 10,000 profitcontribution margin4Current Variable Costs17.47New Sales Price21.52 Part II - Budget ModelMilestone Two, Part IUse Tables I through IV on the MDE Manufacturing Budget to complete your calculations. Refer to Exhibit 7-2 on page 253 of the textBudget ModelFrom Flexible Budget Calculations SheetActualFlexible Budget VarianceFavorable/ UnfavorableFlexible BudgetSales Volume VarianceFavorable/ UnfavorableStatic BudgetUnits Sold47,00047,00050,000Revenues$991,700$4,700Favorable$987,000($63,000)Unfavorable$1,050,000Variable Costs DM-Plastic$37,741.00$2,491.00Favorable$35,250.00($2,250.00)Unfavorable$37,500.00 DM-Cedar$248,160.00$36,660.00Favorable$211,500.00($13,500.00)Unfavorable$225,000.00 Direct Manuf. Labor$332,760.00($50,760.00)Unfavorable$554,600.00$254,600.00Favorable$300,000.00 Variable Manuf. Overhead$2,585.00$235.00Favorable$11,750.00$8,750.00Favorable$3,000.00 Total Variable Costs$621.

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