Cost Analysis

Topics: Costs, Cost, Variable cost Pages: 22 (587 words) Published: February 17, 2015
COST ANALYSIS
Prepared by:

Nebuchadnezzar Rabaya

OBJECTIVES
To provide a basic understanding of the
nature of cost analysis.
To give highlights on the importance of
cost analysis on any venture.
 To present a clear overview on various

types of costs.

Cost
Definition:

an amount that has to be paid or
spent to buy or obtain something.

Analysis
Definition:

is the process of breaking a
complex topic or substance into
smaller parts to gain a better
understanding of it.

What is cost analysis?
A tool to determine the
monetary value or resources used
to run a project or services or a
business.

What is cost analysis?
A review and evaluation of the
cost element and profit.

Why do we need cost analysis?
1. To understand how best to
distribute resources to improve
the outcome.

Why do we need cost
analysis?
2. It is vital in handling a timely
decision making, whether to
proceed or not to on a
particular business or project.

Why do we need cost
analysis?
3. Regardless of industry, it is
relevant and of utmost
importance to efficient
operation of the company.

Why do we need cost
analysis?
4. To evaluate and determine the
reasonable or right pricing on a
given product or services.

Types of Cost

Fixed Costs
These are costs which do not vary with the
level of product sales. They remain the same
regardless of increase/decrease in sales
amount or volume.
Examples
Rental (fixed amount), depreciation, salary of security
guards/janitors under agency, electricity/water/gas,
telephone charges (local calls); insurance premiums;
Maintenance costs covered by service agreements.

Types of Cost

Variable Costs
These costs vary with the level of store sales.
As sales increase, so do the variable costs.
Examples
Royalty, Food & Paper items, Dailies cost, rental based
on % of sales, operating supplies (store, janitorial
supplies), local taxes

Types of Cost

Semi-Variable Costs
These are costs that are a combination
of fixed and variable cost.
Examples
Taxes, maintenance and rental

Cost Classification

Direct Cost
Cost that is traceable to the product.

Indirect Cost
Cost that is not traceable to the product.

Cost Classification
Example:

Direct Cost
Coffee beans
Water
Cream
Sugar
Cup
Salary of the
barista

Indirect Cost
Salary of other
employee
Store rent
Depreciation of
equipment
Advertising
CEO salary
Rent of corporate
HQ

EXAMPLE

Direct Cost: Oreo Misu

Ingredients Price

Oreo
Graham
APC
Con Milk
Packaging

Total:

P67
P127
P46
P52
P6.90

Quantity

27pcs
82pcs
1pc
1pc
1pc

Price/piec Pieces
e
needed

P2.50
P1.55
P46.00
P52
P6.90

6
2
1
.25
1

Unit cost

P14.00
P3.10
P46.00
P13.00
P6.90

P83.88

Cost Analysis
Cost per piece OREO MISU – P83.88
Selling price/piece – P200.00
Ideal sales/day – 15pcs
Average daily sales - P3000.00
Operating days – 20 days

Total Sale – P60,000.00

Total Sale

60,000 100%

P83.88 x 300pcs
Mother was contracted
for P20.00/piece

Net Profit

8,836

14.473%

Cost Analysis
What if my nephew sells it on these prices, how
much is he going to earn?
P150 – Net Profit of P3,127
P120 - -P298.00

Cost Analysis
What if he only managed to sell less than his
projected transaction/day with P200.00/piece?
10 pcs – P1,224
9 pcs- -P298.00

Cost Analysis
Is the price P200/piece reasonable?
What do you think?

Cost Analysis
To conclude this presentation,
Cost Analysis serves as our guide to come up
with a sound prudent decision in the conduct of
fair but competitive business.
As noted above, it insures that funds should be
expended in the most cost effective manner will
it be a personal or public use.

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