Question

Your analysis for the Controller and Sales Manager is needed to suggest a different way of calculating the pricing of the pickles that may be lower. As part of your analysis, address the following items:

Explain why some production costs are variable and some are fixed.

Analyze the benefit of recalculating the cost of pickle production.

How would you recalculate it?

What would the result be?

What is the benefit to the company of recalculating the cost?

Analyze how financial accounting of production cost differs from managerial accounting of production cost.

Explain the difference between the two accounting methods.

Identify the benefits and drawbacks of each method.

Recommend a plan of action to management regarding Super Deals’ offer.

Below is the cost report for a recent month. In this month, Acme produced 9,000 cases and sold them at $20 per case, which is Acme's normal selling price. Nine thousand cases are well beyond Acme's break-even point, enabling Acme to record a substantial profit at the nine-thousand-case level.

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

Answer 1

Answer -We can use variable cost method can be use to determine price of cases of pickle.

                               

Acme Pickle Company Variable 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
Total variable cost	$66,000

Variable cost per unit= $66,000/9,000

=$7.33 per case

Contribution per unit=$20- $7.33

-In above cost statement first four costs are direct and variable cost. And remaining cost like Line supervisors, on salary, Depreciation on factory, Property taxes on factory, Insurance on factory are the fixed nature cost.

-Total profit after recalculation is $114,000 which is greater than $90,00 profit which is calculate from present method of costing.

-The recalculation of cost are in above.

-The results of recalculation that company actually earning/contribution margin per unit ($12.67) is greater than profit per unit ($10).

-The benefit of recalculating the cost is thatController and Marketing manager can take decision about his spare capacity if available, and can increase company overall profit by using production spare capacity. Top level management use variable costing in his many costing, pricing and production related decision

-In management accounting of production we consider only variable and differential cost, however in financial costing of production we consider all variable and fixed costs of production.

-The major difference is between these accounting is that management accounting of production used by management in his decision making and financial accounting of production records all costs for preparation of final accounts.

-

A benefit of management accounting is that this is very useful in top level decision making. Drawback of management accounting is that this accounting consider variable and incremental cost, this method doses not consider fixed cost which is also important part of total cost.

Benefit of financial accounting is that it record all costs related to production which is very important in preparation of financial account of organization.

Drawback of financial accounting is this method considers total cost, which is not relevant in decision making.

-In Super deals’ offer, company can decide his selling price more than $7.33 per case and can utilize his all spare production capacity to increase overall company profit. And also can use alternative offer of sales.