ADMS 2510 Lecture Notes - Lecture 3: Operating Leverage, Cost Driver, Weighted Arithmetic Mean

• School: York University
• Department: Administrative Studies
• Course: ADMS 2510
• Professor: Marcela Porporato

Document Summary

% change sales x degree of leverage. If operating level is 2, low fixed costs, higher variable. When number is small, the change in profit is not very high. If degree of operating level is huge, small change in sales will result in a high profits. Cvp analysis useful in comparing profitability of alternatives. Finding particular outcome wherein no difference whichever alternative course of action to take. Indifference analysis useful in determining when to choose particular alternative. Constant sales mix- weighted average contribution margin ratio. Sales mix: relative combination of quantities of sales of various products making up total sales. Defining method of assigning costs to cost object. Stages of job existence order confirmation process completion. Job- cost sheet to track costs of job. May need to be re-calculated every period. Can compensate for fluctuations in actual overhead not affected by activity levels. Can overcome problems with fluctuations in activity levels not affecting fixed overhead.