MBA FPX5010 Assessment 2

Cost Report

Acme Pickle Company Cost Report

Item Cost

Cucumbers $15,000

Spices and vinegar 11,000

Jars and lids 10,000

Direct labor, paid by the case 30,000

Line supervisors, on salary 10,000

Depreciation on factory 10,000

Property taxes on factory 3,000

Insurance on factory 1,000

Total Costs: $90,000

Cost per case (9,000 cases produced) $10.00

Current Production rates and costs

When looking at last months stats, production with the profit of $10 per case was 9,000 cases. This is based on monthly costs to run the business. If we added 30% more which is about 3, 000 more cases there would be no impact. I would not recommend expanding the business unless we have a bigger market.

Fixed vs Variable Cost

• Fixed cost does not change with change in output level.
• Fixed cost is associated with short run, firm has to make certain necessary expenses , such as rent on leased factory, salaries of permanent employees. these expenses remains same irrespective of output level.
• Fixed costs are divided by the amount of production during the month. It don’t matter if we make 10 cases or 50,000 our cost is fixed.
• Production of 9,000 will be 9.99 per case or 12,000 will be 9.33per case.

• Variable cost changes with change in output level. Zero output means zero variable cost.
• Variable cost per units should be considered when making such a decision where additional units can be made in the current production case because the fixed cost is already being incurred and will not increase.
• A non-cost item that should be considered is will loyal consumers be upset if they learn of the special deal made with the owner of a supermarket chain in Wisconsin.
• Every case we make cost 7.33 (jar, lid, labor, seasoning and cucumbers).

Managerial Accounting

The internal cost which includes product vs. period costs, job order costing, process costing, allocation of manufacturing overhead, and costing of joint products.

Financial Accounting

The report is on what the company has already accounted for that specific period. The report is required for external organizations to evaluate the performance of the company.

Recommendation

Acme's management could lose $4,340 in the long run if the reject the order. And could potentially lose loyal customers. So, management should not reject the $9.50 per case because the total variable cost is $7.33.

Calculation (9.50-7.33)*2,000= $4,340

According to our calculations by increasing our production by 2,000 per month to accommodate the free pickle promo with Super Deals we will get a higher profit. Reducing our price would only result in about a loss of a penny per case. But with this promotion a new market could very well open up bringing more business to the company.