Dennis Elam Phd CPADennis Elam Phd CPAAssociate Professor

Texas A & M University San Antonio

Welcome to San Antonio! Thinking Costs, a Real World Example Break Even – A Graphic Example The Formulas – Tools We Can Use◦ The Riverboat Dinner Dance◦ The University as a Managerial Cost Problem◦ The University as a Managerial Cost Problem

Two Dramatically Different Cost Approaches to your Final Creationy

Skyscrapers and Social Mood Your Final Exam – the McNay

No Date of Death for GrandadGrandad

NO Stone Cutting at the Cemetery

No way, haul it back to the shop!

Hmm, what will that Hmm, what will that entail?

Where’s the Date? A Cost AnalysisC y

Ten miles from Shop to Cemetery The Job! Shop to the Cemetery Pick up Headstone, Secure it, Back to Shop Engrave the Date, Least expensive thing!

H l it B k t th C t P t i Pl Haul it Back to the Cemetery, Put in Place Return to the Shop Cost is no Object eh Dennis? Cost is no Object eh Dennis?

Fixed Costs do not Change by Job

Variable Costs increase with Volume

Are costs fixed or variable for this job?

Direct Materials

Direct Labor

Manufacturing Overhead

Again fixed or variable?

All Costs are Fixed, Salaries, Rent, Truck Budget for the month, add profit and arrive at

Direct Material $4 000Direct Material $4,000Direct Labor-Total $15,000Mfg OH Shop, Truck $5,000Total Including Profit $24,000Days to Work Per Month $1,000 for 24 days

Opportunity Cost – Minimum charge to leave the shop

Minimum charge to do anything!T i i H lid C i l B d Training, Holidays, Capital Budgets

Form a 24 day budget Track below or above Form a 24 day budget, Track below or above the $1,000 / day requirement

Traditional Contribution Margin

Revenue xxx CGS (xxx)

Revenue xxx Variable Cost (xx)

CGS (xxx) Gross Margin xxx Other Expense (xx)

Contribution Margin xxx Fixed Cost (xx)

Net Income xxx

Fixed Cost (xx)

Net Income xxx

Traditional Contribution MarginC g

Sales S Variable Costs VCContribution Margin CMFixed Cost FCBreak Even BE

Break Even = Fixed Cost / Contrib MarginBE FC / CMBE = FC / CM

Dinner/Person $18 Favors/Person $2 Band $2,800 Ballroom Rental $900 Prof Entertainment $1,000

Ti k t d Ad ti i $1 300 Tickets and Advertising $1,300

Is each Variable or Fixed? Is each Variable or Fixed?

Dinner/Person $18 Var Favors/Person $2 Var Band $2,800 Fix Ballroom Rental $900 Fix Prof Entertainment $1,000 Fix

Ti k t d Ad ti i $1 300 Fi Tickets and Advertising $1,300 Fix

Variable◦ Dinner 18

Ticket - $35◦ Dinner 18◦ Favors 2◦ Total Variable 20

CM = S – VC CM = 35 – 20

Fixed◦ Band 2,800◦ Ballroom 900

CM – 15

BE – FC / CM◦ Ballroom 900◦ Entertainment 1,000◦ Tickets 1,300◦ Total Fixed 6 000

BE FC / CM BE = 6,000/15=400

400 Tkts to Break Even

Variable and Fixed Solution

Total Fixed 6,000 400 Tkts to Break Even

S

Target Profit = (FC + TP) / CM

($6,000 + $3,000) / $15 FC TP CM

$9 000/$15 600 Ti k t t k $3 000 $9,000/$15=600 Tickets to make $3,000

Friday Night Lights Rotary Club sold Meal Tickets Before Game $10 / Ticket, VC $5 per Meal, $5 CM /ticket

10 Tickets a piece to sell W b ht th ti k t d th We bought the tickets and gave them away

1 000 $10 $10 000 Eliminate Meal 1,000 x $10 = $10,000

1,000 x $5 = ($5,000)

Eliminate Meal

Either

Net $5,000 1,000 x $10 = $10,000

Or

1,000 x $5 = $5,000

Before After

Direct MaterialDi L b

Discounted Present Value of Cash Flow Direct Labor

Mfg OH Profit

Value of Cash Flow

Not Relation to Cost of Profit

Total Cost of Building

the Building

Before After

Socionomics – the new predictive Social Science

Mood is endogenously (internally) generated separate and apart from external forcesseparate and apart from external forces.

Social Mood determines societal outcomes What we buy the movies we watch the What we buy, the movies we watch, the

songs we listen to Positive social mood brings the positive hope Positive social mood brings the positive hope

necessary to build the biggest buidings in the world

Social mood generates positive feelings to support building the biggest and best

Since this happens at the END of an econmoic boom the project opens in a bustboom, the project opens in a bust

Numerous examples in multiple countries across multiple boomsacross multiple booms

161 FloorsOne Kilometer Tall One Kilometer Tall

3280 Feet Tall 568 Ft Taller than Bur Scaled Back from One

Mile

The Prince’s Beanstalk Details

23 Acres24 Rooms 24 Rooms

Spanish Colonial Think Hearst Mansion

in San Antonio

Mcnay Maniony

She installed antique wrought iron lampswrought-iron lamps and chandeliers. Magueys and yuccas, palms and pines, and a full range of Southwestern floraSouthwestern flora made the 23-acre grounds a garden oasis

The Home Marion Koogler Mcnay

oasis.

g y

When was the McNay Built?

BE = FC / CM Always calculate, what could go wrong! Bricks and mortar become Discounted PV No Building is 100% Occupied The Better the Mood, the Bigger the Project

D bt N T k th Bl f F il Debtors Never Take the Blame for Failure