MGMT Module 4 Research Paper - Polaris Service Department - Cost Classification

Activity 4.4 - Assignment: Research Paper

Polaris offers extended service contracts that provide repair and maintenance coverage over its products. As you complete the following requirements, assume that the Polaris services department uses many of Polaris’s existing resources such as its facilities, repair machinery, and computer systems. Write a two-page report addressing the following topics:

1. Identify several of the variable, mixed, and fixed costs that the Polaris services department is likely to incur in carrying out its services.

2. Assume that Polaris's services revenues are expected to grow by 25% in the next year. How do you expect the costs identified in part 1 to change, if at all?

3. Based on your answer to part 2, can Polaris use the contribution margin ratio to predict how income will change in response to increases in Polaris's services revenues?

Use the following Research Paper Format:

· Times New Roman, with 12-point font size

· Double Spaced

· 1-inch report margins

Your Research Paper will be graded based upon the  Writing Rubric  (PDF) and receive a maximum of 100 points. Submit a document containing your research paper as an attachment utilizing the Activity link above. Include your surname, module number, and title of the assignment in the document name (e.g., surname_M4_ResearchPaper).

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Variable costs:

A variable cost changes in proportion to changes in volume of activity. In this case _______ are variable costs to the Polaris company since these both costs will increase according to selling ________

Mixed costs:

Mixed costs include both fixed and variable cost components. In this case

Fixed costs:

Here depreciation of the building is the fixed cost, since this cost remains unchanged in amount when the volume of activity varies from period within a relevant range.

Some of the costs that the Polaris services department would incur in carrying out its services would be fixed, variable, mixed. During a conventional Cost-Volume-Profit analysis management would classify these costs in respect to production or sales volume. The following examples cover theses cost (Wild & Shaw, 2012):

· Fixed: Some of the fixed cost would be management salaries, and rent on facilities. These costs remain the same even though the volume of the department may vary from period to period, although cost per unit decline as more products are produced.

· Variable: Variable cost would include access fees negotiated with mobile carriers, direct labor used to maintain customer account information, indirect supplies used to maintain the manufacturing process. Variable cost may vary but are fixed per unit.

· Mixed: Mixed costs behave like a combination of both fixed and variable cost depending on different factors. The departments utilities bills would be a perfect example as they could vary depending on different factures (i.e. heating/cooling time depending on the time of year), or be negotiated as a fixed cost (i.e. internet usage).

As revenues grow, the variable costs will increase in total, as will the mixed costs. The total fixed costs should not change. Blackberry’s subscription access for wireless connectivity is generally the same for every customer; it is likely that the variable costs will increase by a constant amount.

As variable costs are likely to increase with volume increases by a constant amount, Research In Motion can use a simple contribution margin ratio calculation to determine the increase in profits with an increase in sales, or the number of customers. If Blackberry’s subscription access for wireless connectivity services were different across customers variable cost increases might not be constant; in this case a simple contribution margin ratio calculation would not be as useful.

The various Variable, mixed and Fixed Cost can be enumerated as under: Variable Cost Fixed Cost Mixed Cost Consumable Stores Rent Expense Telephone Expenses Wages (hourly rate) Interest Expense Power and Water Fuel Cost Insurance Other General Expenses Freight Depreciation Administrative Expenses Commission Salary (managers) The above list is not exhaustive...

Reference

Wild, J. J., & Shaw, W. K. (2013). Managerial Accounting. New York: McGraw-Hill Irwin.