Today, in the cost accounting session, Luis took us through the City Symphony Orchestra case, where costs were based on per ticket and per show basis. After all the calculations were done, and after everyone had accepted the breakeven and safety margin etc numbers by their face value, he did something and got a new set of numbers; numbers which had been bothering me since last night. He plugged in the breakeven numbers back in to find the total revenue and when he calculated the profit, suddenly it showed not zero but a loss number.
I had tried this last night and when I saw the negative number, I was sure that my initial calculations were wrong. But then, he taught us something. When some of the variable costs are allocated on per ticket basis and others on per night basis, we cannot club them together as variable costs. WE have to treat the cost for night as fixed and only then a real break-even can be obtained !!
Interesting learning I would say, as it is so easy to be misled by the earlier number, considering that we get it by doing everything right, at least theoretically.
Anyways, following this was the last session - a wrap up session of Entrepreneurial management today, where Rachida helped us recollect various key concepts and takeaways of the course.
Signals that this term is about to end are becoming more and more evident now :-)
I had tried this last night and when I saw the negative number, I was sure that my initial calculations were wrong. But then, he taught us something. When some of the variable costs are allocated on per ticket basis and others on per night basis, we cannot club them together as variable costs. WE have to treat the cost for night as fixed and only then a real break-even can be obtained !!
Interesting learning I would say, as it is so easy to be misled by the earlier number, considering that we get it by doing everything right, at least theoretically.
Anyways, following this was the last session - a wrap up session of Entrepreneurial management today, where Rachida helped us recollect various key concepts and takeaways of the course.
Signals that this term is about to end are becoming more and more evident now :-)
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