Accounting DQ
The recession that started in 2008 produced a surprise for some manufacturers-- the number of jobs lost was actually lower than in previous recessions. Between 2000 and 2008 many factories adopted lean manufacturing practices that relied less on large numbers of low skilled workers, and more on machines and a few highly skilled workers. Because the employees are highly skilled, employers are reluctant to lose them.
Would you characterize labor costs as being a fixed cost, a variable cost, or something else in this situation?
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2011). Accounting: Tools for business decision making (4th ed.). NJ: John Wiley & Sons
Which income statement format would you prefer to use in helping you make business decisions? Explain.
Author's Corner Video "Break Even and Cost-Volume-Profit Analysis"
Explain how CVP analysis may be helpful in evaluating whether it will be smart to buy a new machine that would reduce labor costs by 60%.
Author's Corner Video "Variable Cost, Fixed Cost, and Operating Leverage"
Explain how full-absorption costing can be abused by management to misstate financial results.