FM Essay Example | Topics and Well Written Essays - 1500 words

FM - Essay ExampleAn increase in the surmount of production could likely result in changes to both fixed and variable cost. Increasing the scale whitethorn lead to increased fixed cost. Additionally, buying more raw materials could result in a lower cost per unit. Furthermore, producing more of an item could lead to higher hourly prescribe for labour as overtime may be necessary. Overtime is normally charged at a higher rate of time and a half.Break even analysis, assumes that the meter of Racey that is produced will be sold. It may not be possible for JxCorp to sell all the products produced. Profit is calculated on the quantity of goods sold and not the quantity of goods expected to be sold. Additionally, JxCorp may not be selling Racey to one customer. Other customers may pauperization a lower price per unit.Break-even analysis breaks down as it assumes there is only one grocery store for the product and all units are sold at the same price. It does not take into considerati on that JxCorp may have to sell Racey to contrasting customers at different prices. It uses only one selling price to memorise how changes in volume sold will affect profits. It is common practice to sell goods at different prices to different customers.The weighted cost of capital is the weighted average of the components of capital (Brigham and Ehrhardt 2005). In this case, the components are honor and debt. The calculation of the weighted cost of capital WACC is shown in Table 4 below.The calculations in Table 4 indicate that WACC is 11%. The weight of each component is 50% (0.5). The token Wd represents the weight of Debt and We the weight of equity. The symbol rd represents the interest rate on the debt which is 9% and re the return on equity which is 15%. The stomach tax rate, T is 22% or 0.22.The information in Table 5 indicates that capital allowances of 100,000, 75,000, and 56,250 were charged in years 1, 2 and 3 respectively and balancing charge of 168,750 in year 4. The