I need an explanation for this Management question to help me study.
Your team has been assigned to design and launch of a new product or service. This could be an external product for sale or an internal service to support other departments. As you prepare for your first team meeting, you know that identifying and classifying costs will be an essential part of the project.
- Briefly explain what the new offering is (Note: this can be hypothetical or based on your current role at your company; you should not share any proprietary information)
- Identify and describe one fixed cost and one variable cost in your department, and explain whether they are controllable or non-controllable.
- Identify whether these costs are traceable to direct materials, direct labor, or overhead.
This week we are starting the Managerial Accounting section of JWMI 530. We start off with cost accounting terminology because it’s important to learn how to manage costs over time in any situation – a for-profit company, a non-profit organization, or a household budget. This week, I am choosing Option 1 to discuss the creation of a marine camp for children with liabilities in the Florida Keys.
My team of three people is working on the budget and plans for our first marine camp for kids with disabilities in Key Largo, Florida. We have selected Key Largo because we want to leverage established relationships between Diveheart and other non-profits in the Florida Keys that provide long term care and redevelopment for coral reefs, sea turtles and marine mammals. We have an opportunity to receive and invest some grant money into the refurbishment of 6 condo units that can serve as our seasonal camp and be rented out the rest of the year. We have identified several costs for the renovations of the condos to make their ADA-compliant and several expenses related to developing and marketing our marine camps to non-profit organizations that serve our targeted participants, children between the ages of 10 and 18 who live with some form of permanent disability who are able to snorkel or scuba and enjoy marine environments.
One of the fixed costs that we will incur is the cost to redesign and retrofit the bathrooms of the condo units to make them accessible and safe for wheelchair users. Each condo has 2 bathrooms and we have decided to retrofit both bathrooms to allow for 2 participants and their 2 parents or caregivers (6 people total) per condo. The cost to redesign and retrofit one bathroom will be $18,000 because we will need to replace toilets and sinks and expand shower areas, and add support equipment. The total cost for all 12 bathrooms in the 6 condo units will be $216,000. The cost will be non-controllable because we are trying to meet a regulatory standard as well as Diveheart’s level of service for participants.
One of the variable costs of our marine camp will be the transportation costs for our participants. We plan to rent wheelchair-accessible vans to accommodate our participants and their parents or caregivers. We expect that 50% of our participants will be flying in from various locations in the United States, Canada, and Mexico, so we will need to provide wheelchair-accessible vans for those participants and their 2 parents or caregivers during the 7 days of camp. Our camp counselors are all volunteers who will be licensed to drive the vehicles for camp participants, but we will also need to purchase individual insurance for the drivers and participants. We will need to plan 7 people per wheelchair-accessible van (1 driver, 2 participants, and 4 parents or caregivers), so the vans will need to be large enough to hold 2 wheelchairs securely, 5 additional passengers and luggage, and scuba gear. The cost of the van rental and insurance is variable because the number of vans will be based upon the number of participants flying into Miami. These costs are also controllable because we can get quotes from multiple rental and insurance companies to get the best services and pricing.