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 Two Dramatically Different Cost Approachesto your Final Creation Skyscrapers and Social Mood Your Final Exam – the McNay
No Date of Death forGrandad NO Stone Cutting atthe Cemetery No way, haul it back tothe shop! Hmm, what will thatentail?Where’s the Date?A Cost Analysis
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! Haul it Back to the Cemetery, Put in Place Return to the Shop 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 atDirect 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 leavethe shop Minimum charge to do anything! Training, i Holidays, Capital Budgets Form a 24 day budget Track below or above Form a 24 day budget, Track below or abovethe $1,000 / day requirement
Traditional Contribution Margin Revenue xxx CGS(xxx) Gross Margin xxx Other Expense (xx) Revenue Variable Cost Contribution Margin Fixed Costxxx(xx)xxx(xx) Net Incomexxx Net IncomexxxTraditionalContribution Margin
SalesSVariable Costs VCContribution Margin CMFixed CostFCBreak EvenBEBreak Even = Fixed Cost / Contrib MarginBE = FC / CM
Dinner/Person $18 Favors/Person $2 Band $2,800 Ballroom Rental $900 Prof Entertainment $1,000 Tickets and Advertising i $1,300 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 Tickets and Advertising i $1,300 Fix
Variable◦ Dinner 18◦ Favors 2◦ Total Variable 20 Fixed◦ Band 2,800◦ Ballroom 900◦ Entertainment 1,000◦ Tickets 1,300◦ Total Fixed 6,000Variable and FixedTicket - $35 CM = S – VC CM = 35 – 20 CM – 15 BE – FC / CM BE = 6,000/15=400 400 Tkts to Break EvenSolution
Target Profit = (FC + TP) / CM ($6,000 + $3,000) / $15 FC TP CM $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 We bought the tickets t and gave them away
1 000 $10 $10 000 Eliminate Meal 1,000 x $10 = $10,000 1,000 x $5 = ($5,000) Net $5,000 Either 1,000 x $10 = $10,000Or 1,000 x $5 = $5,000BeforeAfter
Direct Material Direct Labor Mfg OH Profit Discounted PresentValue of Cash Flow Not Relation to Cost ofthe Building Total Cost of BuildingBeforeAfter
Socionomics – the new predictive SocialScience Mood is endogenously (internally) generatedseparate and apart from external forces. Social Mood determines societal outcomes What we buy, the movies we watch, thesongs we listen to Positive social mood brings the positive hopenecessary to build the biggest buidings in theworld
Social mood generates positive feelings tosupport building the biggest and best Since this happens at the END of an econmoicboom, the project opens in a bust Numerous examples in multiple countriesacross multiple booms
161 FloorsOne Kilometer Tall 3280 Feet Tall 568 Ft Taller than Bur Scaled Back from OneMileThe Prince’s BeanstalkDetails
23 Acres 24 Rooms Spanish Colonial Think Hearst Mansionin San AntonioMcnay Manion
She installed antiquewrought-iron lampsand chandeliers.Magueys and yuccas,palms and pines, and afull range ofSouthwestern floramade the 23-acregrounds a gardenoasis.The HomeMarion Koogler Mcnay
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 Debtors Never Take the Blame for Failure