Agriculture Reference
In-Depth Information
300,000
Original total variable costs
250,000
200,000
Total variable costs
with supplier discounts
150,000
100,000
50,000
0
0
100,000
200,000 300,000 400,000
500,000 600,000
Sales volume ($)
Figure 12.5
Total variable costs with supplier discounts, LCM Nursery, Inc.
300,000
Total fixed costs
250,000
200,000
150,000
100,000
50,000
0
0
100,000
200,000 300,000 400,000
500,000 600,000
Sales volume ($)
Figure 12.6
Changes in total fi xed cost, LCM Nursery, Inc.
or divisions of the company. Although it is clear where many costs will fi t, i.e., what division
will be responsible for a particular cost, there are several expenses that must be allocated
among several divisions.
As one can imagine, it may at times be quite diffi cult to allocate these costs. For example,
in a diversifi ed agribusiness operation like BF&G, some of the manager's salary should be
allocated to the grain division, some to the feed division, seed, etc. The question is, “How
much?” Some managers simply allocate costs based upon sales of the different divisions.
Thus, if grain represented 61 percent of fi rm sales, the grain division would be “billed” for
61 percent of the manager's salary. This allocation scheme is often the worst method of
dividing costs among divisions of the fi rm. The grain volume for the fi rm may be great,
but upon further investigation we may fi nd that the manager only spends about 25 percent of
