15 Jul Response 1: Part 1Hello board of directors from EEC.  I wanted

Response 1: Part 1Hello board of directors from EEC.  I wanted to thank everyone again for joining us for today’s presentation.  For the first part of our presentation we will review EEC’s Journal Activity, define and identify a few factors, and determine effect on sales for EEC.  For our second part of the presentation we will explore Activity-Based Costing.  We will discuss the definition, how and when this concept will be used by EEC, and the advantages/disadvantages of this concept. First we will start with EEC’s different types of costs.  We will discuss variable cost, fixed cost, and mixed cost.  We will define these first and then discuss where in EEC’s journal activity it relates. EEC was able to provide us with a Journal Entry that we will use to verify our findings below. Variable cost is a cost that varies with the level of output. Something like raw materials will be defined as such as this cost for raw materials will vary based on the output of labor and production of our products.  This can effect EECs sales if something like raw materials were to go up in price.  This can even cause a situation where our product pricing may go up because the cost of raw materials would go up.  This is a sensitive area for EEC so we will need to monitor this section very closely as this can affect our sales drastically.  Fixed cost can be defined as business costs such as rent.  This type of cost will remain constant no matter what occurs to the business.  For EEC, this will be our Land, Plant, and Equipment, as these will be a constant no matter what happens to EEC.  We will need to maintain this as a fixture as EEC conducts its business.  This will not necessarily effect our sales as a company as long as EEC does not choose expensive locations to conduct our business.  Also if we maintain a level of quality with our equipment we should not have to purchase more as other companies will save money in this part of their business.  Mixed cost can be defined simply by having or containing both variable and fixed costs.  These can be better described by being defined by something like parking or insurance for a company, as these can change over time.  Something that EEC could define in this category would be Maintenance expenses, where we will always have a cost of maintenance but it can also vary dependent on our labor and production output. (Waddell, CTU Live Chat #2) Maintenance expenses could have an effect on sales for EEC if production and labor rises.  However, if we are expensing more on maintenance we are at the same time making goods at the same time.  This would not be as drastic as the variable section of EECs entries.  I hope this information was helpful and was factor in EEC’s decision to choose Activity-based Concept along with a more expert understanding of the content shared, thank you again for your time and here’s to EEC’s future success!Part 2The second part of our presentation is going to be our strategy.  As EEC’s corporate business financial analyst, I believe we all must have an expert understanding of the various costing methods.  There are several different methods such as, variable costing, target costing, and activity-based costing. We as a company have selected one method, Activity-based Costing as our strategy for EEC.  Before we discuss this concept, we must understand the concept.  Activity-based Costing otherwise known as ABC is a method of assigning costs to products or services based on the resources that they consume.  (Hindle, 2009) Now before the board decides that this is too difficult of a task, we must discuss the foundation before we make a final decision. To simplify this method, we can talk about how ABC can be looked at.  This is considered almost an alternate to traditional accounting in the sense that EEC’s overhead costs would be allocated in proportion to a particular activities direct costs. (Hindle, 2009). There are several different ways that EEC can use this concept of Activity-based costing.  First, we can use the ABC concept when purchasing our raw materials for ABC.  EEC can customize our raw materials purchasing by the activity of our overhead.  We can save money using this method by purchasing raw materials off what is actually needed during that period of time.  This way our company can run more efficiently with purchasing towards manufacturing our products.  This ABC method can save us money by monitoring our overhead.  As other companies in the past have used the Activity-based Costing concept, there will need to be a pilot program before EEC implements any drastic or large scale change.  As we will need to monitor all of our actions very closely with EEC.  Another suggestion for EEC will be to implement ABC software in conjunction with the company’s existing accounting program (Hindle, 2009).  We will need this software in order to pull particular cost information which will make our process run more efficiently.  As I am a true believe that this will help EEC grow and help improve business processes. Now there is a disadvantage here in the fact that if we do not monitor the constant changes to our overhead, our products and how they relate to our purchasing and expensing, we can fall into a difficult situation as a company.  This concept was very popular in the 80’s and part of the 90’s but fell into a slump as companies did not spend the time or had the manpower to stay on top of the constant changes within their company.  This caused many companies to abandon this concept and move back to the traditional approach to accounting for their companies. However, there is an advantage in EEC using Activity-based Costing.  One big example on how this can give EEC an advantage is the story of ABC concept and American car manufacturer, Chrysler.  Chrysler had a large sales boom in the mid to late 80’s, as the marketplace became more saturated with competitors Chrysler was able to bring down costs using the ABC method.  The company was able to save hundreds of millions of dollars through a program that involved ABC, implementing ABC software in existing accounting program they had, and monitoring costing from the overhead that was used throughout the early 1990’s.  Chrysler was able to show that Activity-based costing method showed that the true cost of certain parts for their vehicles that they manufactured were almost 30 times that what had originally be estimated. This discovery through ABC concept made Chrysler decide with their board of directors to manufacture many of those parts out of the country and outsource. This saved Chrysler through the 1990’s as another car manufacturing boom occurred.  (Hindle, 2009)Response 2: Part 1I am here today to discuss some topics within managerial accounting as they relate to our business at EEC. I will show you all some examples of costing types and costing methods. I will also try to give you an understanding of how and why our revenue can change based on the inconsistency of some of these expenses.First, let us look at our journal entry example. We are going to examine these entries to define variable, fixed and mixed costs. Variable costs are a corporate expense that can change as the production output changes. For example, if we are manufacturing bicycles, our variable costs will be larger if we manufacture 100 bikes versus 50. Next are fixed costs. I like to refer to these as stable costs. They do not change and we can expect to see the same amount of this expense month to month (MUSE, Cost Classification). Mixed costs are essentially exactly as the name describes, a mix of costs. These costs could include fixed costs that change month to month. For example, if we are reimbursing employees for mileage to do service calls or sales visits, we know every month this will be a cost. Some months they may visit more customers and have more miles. We know this expense will hit our books but we do not know its exact amount. Looking at the journal entry examples, I will give an example of each for EEC.Variable Expense- Line 5. Factory Supplies. These can vary based on production goals. 16- Raw Material inventory, the cost could vary based on the original cost of the raw materials at the time they were purchased.Fixed Expense- Line 6. Factory Insurance. Although insurance rates can go up, typically we have a short-term rate that we can count on for this cost.Mixed Expense- Utilities-Line 12. We know these are coming every month but cost vary and are passed on by the utility company. If their costs go up, our bills could change making this a mixed expense.If sales volumes increase or decrease it will have a direct impact on our costs. With an increase in sales we will need to consider an increase in production, which would lead to higher labor and material costs- those, are variable. Fixed costs will remain static, but mixed costs like the cost to repair or rent additional machinery will vary- but we can plan for an increase if we are boosting production.Part 2There are multiple types of costing methods EEC could consider. Those include full costing, variable costing, target costing, life cycle costing and activity based costing. My preferred method for EEC would be Target Costing. This reverse approach to costing targets a designated cost before defining and developing the process. This method allows us to determine competitive products and gain an idea of a target sell price that the market will bear. Then we prepare the cost including our preferred ROI percentage to attain our total costs output. Essentially the Target cost is equal to the anticipated selling price minus the desired profit. (Garrison, Noreen, Brewer) I like this idea because I feel it is easiest to control our costs. If we go into a project with our eyes wide open concerning what our price should be in the marketplace and what we expect from an ROI percentage and build costs around that, we should have a good balance for EEC to ensure profitability.