Building Luxury Apartments In Colombo Construction Essay

Building Luxury Apartments In Colombo Construction Essay It is proposed to set up a BOI registered joint-venture company to build luxury apartments in Colombo. The entire project can be done in three phases while this proposal will primarily address Phase I. This involves the purchase of 83 perches of pre-identified land. The subsequent phases will involve the purchase of 85 perches and 100 perches of land respectively. (Survey Plan Appendix part D) The number of units to be constructed for Phase I will be 123 units in a 30-storey tower and will be aimed at the mainly local buyers in the middle to upper income brackets, as well as Sri Lankan expatriates. The preliminary works for Phase I will take about 12 months, including pre-sales of apartments and collection of deposits. The construction period is expected to be 30 months. Phase II will involve 177 units in a 35-storey tower and Phase III will involve 263 units in a 45-storey tower. Phase I of the project is based on an average construction cost of Rs9,030 per sq.ft while the average selling price is expected to be Rs25,800 per sq.ft. The construction will only commence upon reaching secured sales through deposits amounting to 50% of the construction cost by sales value. The capital required for Phase I is Rs650mn (Rs235 mn being in cash and Rs415 mn being land value) where the cash is sufficient to cover consultants fees, marketing expenses and CMC fees during the first 12 months, up to push-button. The project is expected to generate a profit of Rs777.8 mn for Phase I. If the same capital is retained in the company, Phase II can generate Rs1,850.3mn and Phase III of Rs3,325.8 mn. Background This proposal aims to capitalize on the buoyant market for affordable, yet luxury, condominiums within the Colombo city limits. In this regard, it is proposed to set up a joint-venture company for the purpose of raising equity capital to acquire land and develop a luxury condominium project. This project in to be located in the heart of downtown Colombo and is to be developed in three phases, with the land to be acquired already been identified. This proposal addresses the development of Phase I of this project, while the remaining Phases can be developed along similar lines. The project will be developed and promoted by experienced professionals with a proven track record in the property development market. Project Plan Pre-project Planning Approval of project Collect relevant market information and trends, analyze best fit for available land base / land that may become available in future, supervise the preparation of preliminary project evaluation document for presentation at Board of Management (BoM), get approval for sending out Architects brief, Guide the team in preparing architects brief; study and modify preliminary design provided by architect in line with market trends; make a presentation to BoM on the project in order to get the required approvals for commencement of pre-sales and necessary funding for this purpose MEASUREMENT CRITERIA Quantitative/Qualitative Total time taken from project conceptualization through project feasibility through project evaluation to presentation; Number of project presentations made to BoM; success rate of presentations Pre-Sales of Project and Approval to Commence Construction Supervise the preparation of legal documentation / collateral / show flat / advertising and promotional plans; Selection of Consultant / Project Manager Firm; Initiate work with the local consultants, including Project Manager towards obtaining building approvals in order to meet push button threshold and necessary statutory building approvals. MEASUREMENT CRITERIA -Quantitative/Qualitative Actual Sales against Target Project Construction Implementation On achieving required sales threshold, make presentation to BoM for approval of project construction phase, monitor project progress weekly, authorize project payments, variations, extensions of time, negotiate with contractors on modifications in order to ensure quality and timely completion of project within approved budget. MEASUREMENT CRITERIA -Quantitative/Qualitative Project as per Specifications; Cost Overrun; Time Overrun Sales and Collections Review achievement of sales targets; if required, initiate necessary actions to meet targets; monitor timely remittances of customers payment tranches in order to ensure planned revenue recognition. MEASUREMENT CRITERIA -Quantitative/Qualitative Actual Receipts against Target Project Closure Obtain necessary statutory approvals and execute all necessary legal documentation in time, full-fill customer expectations in order to deliver customer satisfaction, and enhance company reputation. MEASUREMENT CRITERIA -Quantitative/Qualitative Customer Feedback; Repeat Business from existing customers Construction Strategy Design Considerations The project will aim to maximize the plot coverage to ensure efficient use of the land. Given the site size, location, road frontage and road width, the maximum permitted plot coverage as per existing regulations of 50% will be utilized. The design will be based on a fixed mix of apartments (i.e. not a modular design) as this will bring in design efficiencies and cost savings. The design will be essentially a reinforced concrete structure with locally procured materials (such as granite, tiles etc) while more expensive imported fitments and fittings will be procured in keeping with the market positioning of the condominiums. The design will also involve cost savings through efficient ME design (such as split-type air conditioning as opposed to central air conditioning) as well as other means to contain costs. Careful attention will be paid to ensure smooth operational considerations from car parking arrangements to easy maintenance of the building. Efficient energy and water usage will also be important given the high cost of electricity while pipe-borne potable water is in short supply. Further, it is proposed to have the car parking above ground at podium level as this will avoid the need for expensive basement construction. Costing This project will be on a BOI duty free basis and will be subject to 15% VAT. The target overall construction cost for Phase I of this development is expected to be about Rs9,030 per sq.ft. (which excludes land costs, consultancy fees and contingencies). Timeline It is estimated that the finalization of designs will take 8 months while obtaining all the regulatory approvals will take an additional 4 months. Sales will run concurrently while waiting for regulatory approval. As such, it is estimated that push-button will be about 12 months from the inception of this project. It is estimated that it will take 30 months for completing construction of Phase I from the time of push-button. Risk Factors and Mitigating Measures Demand / Pricing Risk Supply and demand of luxury apartments in the market will determine pricing. The supply of apartments within Colombo city is growing, but is also constrained to some extent due to lack of availability of suitable tracts of land. Meanwhile, the demand for apartments continues to grow from the Sri Lankan middle and upper middle class as they migrate to the city to be closer to their work place due to increasing traffic congestion and poor infrastructure. Sri Lankan families also wish to be closer to childrens schools, hospitals and other services. Given that the infrastructure is failing to keep up with the growth in the urban population, demand for condominiums in the heart of the city will continue to grow. This should help to underpin prices. However, there is the risk that if the local economy slows down, it will adversely affect apartment sales. Further, a poor investment climate and falling tourism will curtail purchases from overseas buyers as well. In situations such as this, an over supply of apartments can lead to price cutting by developers to sell their inventory of apartments. To mitigate the risk from over supply and price cutting, this project has two mitigating measures. The first is to ensure that the pre-determined sales target has been secured before push-button. The second is to phase out the development into three, thereby limiting the risk to one phase at a time. Cost Risk Costs on a project such as this will be affected by domestic inflation and the exchange rate of the SL Rupee. As both of these factors cannot be directly controlled, it is proposed that this project be worked on a fixed-price contract for the construction. This will effectively pass on the risk of cost increases to the contractor. Further, as this development will be done in phases, it has the benefit of having a shorter timeframe for each phase and thus being able to limit the fixed price premium. Duration Risk The risk that the project construction gets delayed is very real. This could arise due to a number of reasons, including poor management/cash-flow by the contractor, unavailability of skilled labour, shortage of materials (such as bricks etc.) amongst others. To mitigate this risk that arises from any delay, only short-listed contractors with good reputations will be invited to tender for this project, preferably with their own directly employed labour. In addition, professional project managers will be hired to manage the project on behalf of the developer. Interest Rate Risk Interest rates have been rising and this will affect the ability of potential apartment buyers to finance a purchase through a mortgage. Although this risk cannot be directly avoided, as this project will be focusing on the affordable segment of the market, it should still enable customers to buy an apartment. Further, the payments will be staggered through the construction of the project. Indeed, this project has the advantage that as the land will be acquired through the equity infusion, the need for a large deposits/tranches from buyers at the start can be avoided as a further incentive to buy. Company Structure Capital Requirement It is proposed to raise equity capital to cover the cost of the land acquisition for Phase I, the cost of Consultancy , Marketing costs and CMC fees over the first 12 months of the project upto push-button. The required capital is thus Rs650 mn, of which Rs235 mn being in cash, the rest being value of the land. A breakdown of these costs is given below. Rs (mn) Consultancy Costs 62 Marketing Costs 33 Pre-Contract works 29 CMC Fees 111 235 Land cost 415 650 The project will not rely on long-term borrowings to raise capital. However, short-term cash shortfalls are to be met through bank overdrafts. Equity Structure It is proposed to set up a BOI registered joint-venture company for the purpose of this development. The required capital is to be raised through a private placement. The promoters of this project will be entitled to 2% of the equity. The final structure of the company will be as follows. Equity Investors 98.0% Promoters 2.0% 100.0% Key Assumptions Land cost of Rs5 mn per perch Exchange rate at start of development of Rs110 Phase I Phase II Phase III Land Extent (perches) 83 86 100 No. of Units 123 177 263 Parking Amenities levels 5 6 7 Apartment levels 25 30 38 Total No. of Storeys 30 36 45 Average Cost of construction Rs 9,030 psf Rs9,800 psf Rs10,635 psf Time for construction 30 months 36 months 45 months Aver. selling price (inc. VAT) Rs25,806 psf Rs27,703 psf Rs30,921 psf Period to sell out units 25 months 30 months 38 months

Should Gambling Be Legalized? :: Argumentative Persuasive Essays

Should Gambling Be Legalized?   Ã‚  Ã‚  Ã‚  Ã‚  Over the past twenty or so years, great wealth and improved economic and social conditions have been promised to the communities that have embraced legalized gambling. However, with twenty years of experience it is time to look back and analyze whether this is true or not.   Ã‚  Ã‚  Ã‚  Ã‚  It could easily be said that gambling is as American as apple pie. Gambling has shaped American history since its beginning. Lotteries were used by The First Continental Congress to help finance the Revolutionary war. Many of our founding fathers, such as Benjamin Franklin, Thomas Jefferson, and George Washington, have sponsored private lotteries. It has been said that "Our founding fathers were just numbers guys in wigs" At one time baseball would have seemed to be the American pastime. This is not so now. In recent years, the attendance at casinos has nearly doubled the attendance at all major league baseball games, with close to 130 million people visiting casinos every year.1   Ã‚  Ã‚  Ã‚  Ã‚  With so much money at stake, the average gambler does not stand a chance against this big business. The casinos go to every length to analyze what makes a gambler bet, stay longer, and loose as much money as possible.   Ã‚  Ã‚  Ã‚  Ã‚  Gamblers who come to casinos with the intention of winning money are habitually disappointed. As casino crime lord, Meyer Lansky's universal gambling truth states; "Gamblers never win, the house never loses"2 Slot Machines and most table games allow players to make bets where the probability of winning is relatively high. Frequent wins are characterized by low payouts. These frequent wins encourage further gambles with low payouts.   Ã‚  Ã‚  Ã‚  Ã‚  Frequent winning, low paying games are not the only way casinos get people to keep playing. Nothing less that psychological warfare is going on at casinos across the country. "The days of shaved dice, missing face cards and rigged roulette wheels are long gone. But the pursuit of profitability in the corporate era of gambling has turned the average casino into a financially hazardous place for betters"3 The casino's beliefs are all based on the fact that since the house has an advantage over the player, the longer the house can keep the player playing, the more money the house will make. The gambling industry spends millions each year to whether wider isles, fresher air, and back rests on the chairs at slot machines make a player stay longer.4 And why would the casino care if somebody is comfortable? Because if each better stays for just a few more minutes, it could mean millions for the casinos.   Ã‚  Ã‚  Ã‚  Ã‚  Casinos have false ceilings with rooms above them where some people

Variable Cost and Net Operating Income

ASSIGNMENT P 6-16 , P6-17 PROBLEM 6-16 Variable and Absorption Costing Unit Product Costs and Income Statements; Explanation of Difference in Net Operating Income [LO1, LO2, LO3] Wiengot Antennas, Inc. , produces and sells a unique type of TV antenna. The company has just opened a new plant to manufacture the antenna, and the following cost and revenue data have been provided for the first month of the plant's operation in the form of a worksheet. Because the new antenna is unique in design, management is anxious to see how profitable it will be and has asked that an income statement be prepared for the month.Required: 1. Assume that the company uses absorption costing. a. Determine the unit product cost. b. Prepare an income statement for the month. 2. Assume that the company uses variable costing. a. Determine the unit product cost. b. Prepare a contribution format income statement for the month. 3. Explain the reason for any difference in the ending inventory balances under the tw o costing methods and the impact of this difference on reported net operating income. PROBLEM 6-17 Variable and Absorption Costing Unit Product Costs and Income Statements [LO1, LO2] Nickelson Company manufactures and sells one product.The following information pertains to each of the company's first three years of operations: p. 262 During its first year of operations Nickelson produced 60,000 units and sold 60,000 units. During its second year of operations it produced 75,000 units and sold 50,000 units. In its third year, Nickelson produced 40,000 units and sold 65,000 units. The selling price of the company's product is $56 per unit. Required: 1. Compute the company's break-even point in units sold. 2. Assume the company uses variable costing: a.Compute the unit product cost for year 1, year 2, and year 3. b. Prepare an income statement for year 1, year 2, and year 3. 3. Assume the company uses absorption costing: a. Compute the unit product cost for year 1, year 2, and year 3. b. Prepare an income statement for year 1, year 2, and year 3. 4. Compare the net operating income figures that you computed in requirements 2 and 3 to the break-even point that you computed in requirement 1. Which net operating income figures seem counterintuitive? Why? LEARNING OBJECTIVES FOR ASSIGNMENT.LO1, LO2, LO3 OVERVIEW OF VARIABLE AND ABSOPTION COSTING As you begin to read about variable LEARNING OBJECTIVE 1 and absorption costing income Explain how variable costing differs from statements in the coming pages, absorption costing and compute unit focus your attention on three key product costs under each method. concepts. First, both income statement formats include product costs and period costs, although they define these cost classifications differently. Second, variable costing income statements are grounded in the contribution format.They categorize expenses based on cost behavior—variable costs are reported separately from fixed costs. Absorption costing income statements ignore variable and fixed cost distinctions. Third, as mentioned in the paragraph above, variable and absorption costing net operating income figures often differ from one another. The reason for these differences always relates to the fact the variable costing and absorption costing income statements account for fixed manufacturing overhead differently.Pay very close attention to the two different ways that variable costing and absorption costing account for fixed manufacturing overhead. Variable Costing Under variable costing, only those manufacturing costs that vary with output are treated as product costs. This would usually include direct materials, direct labor, and the variable portion of manufacturing overhead. Fixed manufacturing overhead is not treated as a product cost under this method. Rather, fixed manufacturing overhead is treated as a period cost and, like selling and administrative expenses, it is expensed in its entirety each period.Consequently, the cos t of a unit of product in inventory or in cost of goods sold under the variable costing method does not contain any fixed manufacturing overhead cost. Variable costing is sometimes referred to as direct costing or marginal costing. Absorption Costing As discussed in Chapter 3, absorption costing treats all manufacturing costs as product costs, regardless of whether they are variable or fixed. The cost of a unit of product under the absorption costing method consists of direct materials, direct labor, nd both variable and fixed manufacturing overhead.Thus, absorption costing allocates a portion of fixed manufacturing overhead cost to each unit of product, along with the variable manufacturing costs. Because absorption costing includes all manufacturing costs in product costs, it is frequently referred to as the full cost method. p. 231 EXHIBIT 6–1 Variable Costing versus Absorption Costing Selling and Administrative Expenses Selling and administrative expenses are never treate d as product costs, regardless of the costing method.Thus, under absorption and variable costing, variable and fixed selling and administrative expenses are always treated as period costs and are expensed as incurred. Summary of Differences The essential difference between variable costing and absorption costing, as illustrated in Exhibit 6-1, is how each method accounts for fixed manufacturing overhead costs—all other costs are treated the same under the two methods. In absorption costing, fixed manufacturing overhead costs are included as part of the costs of work in process inventories.When units are completed, these costs are transferred to finished goods and only when the units are sold do these costs flow through to the income statement as part of cost of goods sold. In variable costing, fixed manufacturing overhead costs are considered to be period costs—just like selling and administrative costs—and are taken immediately to the income statement as period expenses. Variable And Absorption Costing—An Example To illustrate the difference between variable costing and absorption costing, consider Weber Light Aircraft, a company that produces light recreational aircraft.Data concerning the company's operations appear below: As you review the data above, it is important to realize that for the months of January, February, and March, the selling price per aircraft, variable cost per aircraft, and total monthly fixed expenses never change. The only variables that change in this example are the number of units produced (January =1 unit produced; February = 2 units produced; March = 4 units produced) and the number of units sold (January = 1 unit sold; February = 1 unit sold; March = 5 units sold).We will first construct the company's variable costing income statements for January, February, and March. Then we will show how the company's net operating income would be determined for the same months using absorption costing. Variable Cos ting Contribution Format Income Statement To prepare the company's variable costing income statements for January, February, and March we begin by computing the unit product cost. Under variable costing, product costs consist solely of variable production costs.At Weber Light Aircraft, the variable production cost per unit is $25,000, determined as follows: LEARNING OBJECTIVE 2 Prepare income statements using both variable and absorption costing. Since each month's variable production cost is $25,000 per aircraft, the variable costing cost of goods sold for all three months can be easily computed as follows: p. 233 And the company's total selling and administrative expense would be derived as follows: Putting it all together, the variable costing income statements would appear as shown inExhibit 6-2.Notice, the contribution format has been used in these income statements. Also, the monthly fixed manufacturing overhead costs ($70,000)have been recorded as a period expense in the mont h incurred. EXHIBIT 6–2 Variable Costing Income Statements A simple method for understanding how Weber Light Aircraft computed its variable costing net operating income figures is to focus on the contribution margin per aircraft sold, which is computed as follows:The variable costing net operating income for each period can always be computed by multiplying the number of units sold by the contribution margin per unit and then subtracting total fixed costs. For Weber Light Aircraft these computations would appear as follows: Notice, January and February have the same net operating loss. This occurs because one aircraft was sold in each month and, as previously mentioned, the selling price per aircraft, variable cost per aircraft, and total monthly fixed expenses remain constant. . 234 Absorption Costing Income Statement As we begin the absorption costing portion of the example, remember that the only reason absorption costing income differs from variable costing is that the me thods account for fixed manufacturing overhead differently. Under absorption costing, fixed manufacturing overhead is included in product costs. In variable costing, fixed manufacturing overhead is not included in product costs and instead is treated as a period expense just like selling and administrative expenses.The first step in preparing Weber's absorption costing income statements for January, February, and March, is to determine the company's unit product costs for each month as follows1: Notice that in each month, Weber's fixed manufacturing overhead cost of $70,000 is divided by the number of units produced to determine the fixed manufacturing overhead cost per unit. Given these unit product costs, the company's absorption costing net operating income in each month would be determined as shown in Exhibit 6-3.The sales for all three months in Exhibit 6-3 are the same as the sales shown in the variable osting income statements. The January cost of goods sold consists of one u nit produced during January at a cost of $95,000 according to the absorption costing system. The February cost of goods sold consists of one unit produced during February at a cost of $60,000 according to the absorption costing system. The March cost of goods sold ($230,000) consists of one unit produced during February at an absorption cost of $60,000 plus four units produced in March with a total absorption cost of $170,000 (= 4 units produced Ãâ€" $42,500 per unit).The selling and administrative expenses equal the amounts reported in the variable costing income statements; however they are reported as one amount rather than being separated into variable and fixed components. EXHIBIT 6–3 Absorption Costing Income Statements p. 235 Note that even though sales were exactly the same in January and February and the cost structure did not change, net operating income was $35,000 higher in February than in January under absorption costing. This occurs because one aircraft produc ed in February is not sold until March.This aircraft has $35,000 of fixed manufacturing overhead attached to it that was incurred in February, but will not be recorded as part of cost of goods sold until March. Contrasting the variable costing and absorption costing income statements in Exhibits 62and 6-3, note that net operating income is the same in January under variable costing and absorption costing, but differs in the other two months. We will discuss this in some depth shortly. Also note that the format of the variable costing income statement differs from the absorption costing income statement.An absorption costing income statement categorizes costs by function—manufacturing versus selling and administrative. All of the manufacturing costs flow through the absorption costing cost of goods sold and all of the selling and administrative costs are listed separately as period expenses. In contrast, in the contribution approach, costs are categorized according to how they behave. All of the variable expenses are listed together and all of the fixed expenses are listed together.The variable expenses category includes manufacturing costs (i. e. , variable cost of goods sold) as well as selling and administrative expenses. The fixed expenses category also includes both manufacturing costs and selling and administrative expenses. Reconciliation of Variable Costing with Absorption Costing Income As noted earlier, variable costing and absorption costing net operating incomes may not be the same. In the case of Weber Light Aircraft, the net operating incomes are the same in January, but differ in the other two months.These differences occur because under absorption costing some fixed manufacturing overhead is capitalized in inventories (i. e. , included in product costs) rather than currently expensed on the income statement. If inventories increase during a period, under absorption costing some of the fixed manufacturing overhead of the current period wil l bedeferred in ending inventories. For example, in February two aircraft were produced and each carried with it $35,000 (= $70,000 à · 2 aircraft produced) in fixed manufacturing overhead.Since only one aircraft was sold, $35,000 of this fixed manufacturing overhead was on February's absorption costing income statement as part of cost of goods sold, but $35,000 would have been on the balance sheet as part of finished goods inventories. In contrast, under variable costing all of the $70,000 of fixed manufacturing overhead appeared on the February income statement as a period expense. Consequently, net operating income was higher under absorption costing than under variable costing by $35,000 in February. This was reversed in March when four units were produced, but five were sold.In March, under absorption costing $105,000 of fixed manufacturing overhead was included in cost of goods sold ($35,000 for the unit produced in February and sold in March plus $17,500 for each of the four units produced and sold in March), but only $70,000 was recognized as a period expense under variable costing. Hence, the net operating income in March was $35,000 lower under absorption costing than under variable costing.LEARNING OBJECTIVE 3 Reconcile variable costing and absorption costing net operating incomes and explain why the two amounts differ. p. 36 In general, when the units produced exceed unit sales and hence inventories increase, net operating income is higher under absorption costing than under variable costing. This occurs because some of the fixed manufacturing overhead of the period is deferred in inventories under absorption costing. In contrast, when unit sales exceed the units produced and hence inventories decrease, net operating income is lower under absorption costing than under variable costing. This occurs because some of the fixed manufacturing overhead of previous periods is released from inventories under absorption costing.When the units produced and u nit sales are equal, no change in inventories occurs and absorption costing and variable costing net operating incomes are the same. 2 Variable costing and absorption costing net operating incomes can be reconciled by determining how much fixed manufacturing overhead was deferred in, or released from, inventories during the period: The reconciliation would then be reported as shown in Exhibit 6-4: EXHIBIT 6–4 Reconciliation of Variable Costing and Absorption Costing Net Operating IncomesAgain note that the difference between variable costing net operating income and absorption costing net operating income is entirely due to the amount of fixed manufacturing overhead that is deferred in, or released from, inventories during the period under absorption costing. Changes in inventories affect absorption costing net operating income—they do not affect variable costing net operating income, providing that variable manufacturing costs per unit are stable. p. 237 EXHIBIT 6â₠¬â€œ5 Comparative Income Effects—Absorption and Variable CostingThe reasons for differences between variable and absorption costing net operating incomes are summarized in Exhibit 6-5. When the units produced equal the units sold, as in January for Weber Light Aircraft, absorption costing net operating income will equal variable costing net operating income. This occurs because when production equals sales, all of the fixed manufacturing overhead incurred in the current period flows through to the income statement under both methods.For companies that use Lean Production, the number of units produced tends to equal the number of units sold. This occurs because goods are produced in response to customer orders, thereby eliminating finished goods inventories and reducing work in process inventory to almost nothing. So, when a company uses Lean Production differences in variable costing and absorption costing net operating income will largely disappear. When the units produced e xceed the units sold, absorption costing net operating income will exceed variable costing net operating income.This occurs because inventories have increased; therefore, under absorption costing some of the fixed manufacturing overhead incurred in the current period is deferred in ending inventories on the balance sheet, whereas under variable costing all of the fixed manufacturing overhead incurred in the current period flows through to the income statement. In contrast, when the units produced are less than the units sold, absorption costing net operating income will be less than variable costing net operating income.This occurs because inventories have decreased; therefore, under absorption costing fixed manufacturing overhead that had been deferred in inventories during a prior period flows through to the current period's income statement together with all of the fixed manufacturing overhead incurred during the current period. Under variable costing, just the fixed manufacturin g overhead of the current period flows through to the income statement. Advantages Of Variable Costing And The Contribution Approach Variable costing, together with the contribution approach, offers appealing advantages for internal reports.This section discusses four of those advantages. Enabling CVP Analysis CVP analysis requires that we break costs down into their fixed and variable components. Because variable costing income statements categorize costs as fixed and variable, it is much easier to use this income statement format to perform CVP analysis than attempting to use the absorption costing format, which mixes together fixed and variable costs. Moreover, absorption costing net operating income may or may not agree with the results of CVP analysis.For example, let's suppose that you are interested in computing the sales that would be necessary to generate a target profit of $235,000 at Weber Light Aircraft. A CVP analysis based on the January variable costing income stateme nt from Exhibit 6-2would proceed as follows: Thus, a CVP analysis based on the January variable costing income statement predicts that the net operating income would be $235,000 when sales are $500,000. And indeed, the net operating income under variable costing is $235,000 when the sales are $500,000 in March.However, the net operating income under absorption costing is not $235,000 in March, even though the sales are $500,000. Why is this? The reason is that under absorption costing, net operating income can be distorted by changes in inventories. In March, inventories decreased, so some of the fixed manufacturing overhead that had been deferred in February's ending inventories was released to the March income statement, resulting in a net operating income that is $35,000 lower than the $235,000 predicted by CVP analysis.If inventories had increased in March, the opposite would have occurred—the absorption costing net operating income would have been higher than the $235,00 0 predicted by CVP analysis. p. 239 Explaining Changes in Net Operating Income The variable costing income statements in Exhibit 6-2 are clear and easy to understand. All other things the same, when sales go up, net operating income goes up. When sales go down, net operating income goes down. When sales are constant, net operating income is constant. The number of unit produced does not affect net operating income.Absorption costing income statements can be confusing and are easily misinterpreted. Look again at the absorption costing income statements in Exhibit 6-3; a manager might wonder why net operating income went up from January to February even though sales were exactly the same. Was it a result of lower selling costs, more efficient operations, or was it some other factor? In fact, it was simply because the number of units produced exceeded the number of units sold in February and so some of the fixed manufacturing overhead costs were deferred in inventories in that month.Th ese costs have not gone away—they will eventually flow through to the income statement in a later period when inventories go down. There is no way to tell this from the absorption costing income statements. To avoid mistakes when absorption costing is used, readers of financial statements should be alert to changes in inventory levels. Under absorption costing, if inventories increase, fixed manufacturing overhead costs are deferred in inventories, which in turn increases net operating income. If inventories decrease, fixed manufacturing overhead costs are released from inventories, which in turn decreases net perating income.Thus, when absorption costing is used, fluctuations in net operating income can be due to changes in inventories rather than to changes in sales. Supporting Decision Making The variable costing method correctly identifies the additional variable costs that will be incurred to make one more unit. It also emphasizes the impact of fixed costs on profits. Th e total amount of fixed manufacturing costs appears explicitly on the income statement, highlighting that the whole amount of fixed manufacturing costs must be covered for the company to be truly profitable.In the Weber Light Aircraft example, the variable costing income statements correctly report that the cost of producing another unit is $25,000 and they explicitly recognize that $70,000 of fixed manufactured overhead must be covered to earn a profit. Under absorption costing, fixed manufacturing overhead costs appear to be variable with respect to the number of units sold, but they are not. For example, in January, the absorption unit product cost at Weber Light Aircraft is $95,000, but the variable portion of this cost is only $25,000.The fixed overhead costs of $70,000 are commingled with variable production costs, thereby obscuring the impact of fixed overhead costs on profits. Because absorption unit product costs are stated on a per unit basis, managers may mistakenly belie ve that if another unit is produced, it will cost the company $95,000. But of course it would not. The cost of producing another unit would be only $25,000. Misinterpreting absorption unit product costs as variable can lead to many problems, including inappropriate pricing decisions and decisions to drop products that are in fact profitable. p. 240 Adapting to the Theory of ConstraintsThe Theory of Constraints (TOC), which was introduced in Chapter 1, suggests that the key to improving a company's profits is managing its constraints. For reasons that will be discussed in a later chapter, this requires careful identification of each product's variable costs. Consequently, companies involved in TOC use a form of variable costing. Variable costing income statements require one adjustment to support the TOC approach. Direct labor costs need to be removed from variable production costs and reported as part of the fixed manufacturing costs that are entirely expensed in the period incurred .The TOC treats direct labor costs as a fixed cost for three reasons. First, even though direct labor workers may be paid on an hourly basis, many companies have a commitment—sometimes enforced by labor contracts or by law—to guarantee workers a minimum number of paid hours. Second, direct labor is not usually the constraint;therefore, there is no reason to increase it. Hiring more direct labor workers would increase costs without increasing the output of saleable products and services. Third, TOC emphasizes continuous improvement to maintain competitiveness.Without committed and enthusiastic employees, sustained continuous improvement is virtually impossible. Because layoffs often have devastating effects on employee morale, managers involved in TOC are extremely reluctant to lay off employees. For these reasons, most managers in TOC companies regard direct labor as a committed-fixed cost rather than a variable cost. Hence, in the modified form of variable costing use d in TOC companies, direct labor is not usually classified as a product cost.

The Beneficial and Detrimental Effects of Phonology Essay

For years, phonology has been incorporated into language education. Young children are introduced to phonics as educators take them through visual flash cards, teaching them the sounds of the alphabet. Children learn to connect sounds into words, using what they learned from the alphabet to apply a system of sounds into a word. Controversy regarding this reading education method has additionally been popular. Although researchers have found negative effects in learning to read phonologically, teachers can still strategically incorporate it into the classroom as long as they are aware of its potential negative effects. According to Bentin S. (1991), phonological awareness is the ability to recognize the internal phonetic structure†¦show more content†¦This is partially because the English language is sometimes difficult to phonetically learn since some rules do not apply and it becomes confusing for the learner and difficult for the educator. Although semantics appear to be a beneficial method, there are many scholars who argue otherwise. Dewhurst, S. and Robinson, C. (2004) discuss some of the negative effects among children whose education focuses more on semantics than phonetics. The study was conducted on 5,8, and 11-year old children and children from each age group falsely recalled nonpresented items related to the study lists (782). Although the study varied depending on the age group, it was clear that the focus of semantics has caused children to have memory illusions as they read (782). Many scholars argue that phonetics is the most effective way to teach reading skills because it makes the individual a better reader in the long run. Once a child can phonetically read, they have the capability to pick any book up and sound out its contents. Children who learn semantically are unable to do this because they learn to memorize certain words as they go. A positive element to learning semantically, however, is the childs ability to read quickly. Once a child has established a memorization and recognition to words, they are able to read very quickly. Children who learn phonetically are often slower since they are sometimes required to stop and sound it out. HoweverShow MoreRelatedThe Lexical Decision Task Shows Evidence Towards Readiness1619 Words   |  7 Pagesothers, learn valuable survival and intellectual skills, or even retain that eating and drinking water is how humans stay alive. Memories can be both beneficial and detrimental to humans and animals alike. Most memories, like remembering that brick walls hurt to run into or that brushing one’s teeth twice a day will keep them white and healthy, are beneficial to our daily living. However, some memories, like walking through a smoking area outside of an event while trying to quit smoking, can lead us to