Full Answer Section

Overhead Application in a Standard Cost System

In a standard cost system, overhead costs are allocated to products based on predetermined rates. These rates are calculated by dividing estimated total overhead costs by a predetermined allocation base, such as direct labor hours or machine hours.

Fixed vs. Variable Overhead

• Fixed Overhead: Costs that remain relatively constant within a relevant range of activity levels, such as rent or depreciation.
• Variable Overhead: Costs that vary in direct proportion to changes in activity levels, such as indirect labor or utilities.

Activity-Based Flexible Budget

Activity-based costing (ABC) is a more sophisticated method of allocating overhead costs that considers the specific activities that drive costs. By identifying and measuring these activities, ABC can provide a more accurate allocation of overhead costs to products.

Flow of Costs and Product Cost

The flow of costs through manufacturing cycles involves the following steps:

1. Raw Materials: Purchase of raw materials and their storage.
2. Work in Process: Conversion of raw materials into finished goods.
3. Finished Goods: Completed goods ready for sale.
4. Cost of Goods Sold: The cost of goods sold during a period.

Product cost is determined by adding the cost of direct materials, direct labor, and manufacturing overhead.

Impact of Cost Flow and Product Cost on Decision Making

Accurate product cost information is essential for pricing, profitability analysis, and decision-making. By understanding the cost of producing a product, managers can make informed decisions about pricing, product mix, and resource allocation.

Performance Evaluation Tools

• Return on Investment (ROI): Measures the profitability of an investment relative to its cost.
• Residual Income: Measures the excess of operating income over a minimum required return on investment.

Cash Flow Analysis

Cash flow refers to the movement of cash into and out of an organization. It is typically divided into three categories:

• Operating Activities: Cash flows related to the day-to-day operations of the business.
• Investing Activities: Cash flows related to the purchase or sale of long-term assets.
• Financing Activities: Cash flows related to borrowing money or issuing equity.

Free Cash Flow is the cash generated by operating activities minus capital expenditures. It represents the cash available for reinvestment or distribution to shareholders.

Financial Analysis of the TV Series

Costs:

• Production Costs: Costs of filming, editing, and producing the series.
• Opportunity Cost: The lost revenue from canceling the wildlife show ($25,000).

Revenue:

• Manufacturing Show: Projected revenue of $75,000 (15% of viewership * $5,000 per 1%).
• Wildlife Show: Projected revenue of $100,000 (10% of viewership * $10,000 per 1%).

Decision:

From a financial perspective, it would be more profitable https://perfectcustompapers.com/how-media-influences-culture/to continue airing the wildlife show. While the manufacturing show has a higher viewership, the revenue generated per viewer is significantly lower. Additionally, canceling the wildlife show results in a loss of $25,000 in revenue from selling it to network television.

However, other factors, such as the potential long-term benefits of producing the manufacturing show or the alignment with the station’s overall programming strategy, should also be considered in making a final decision.