Question

Create a 9-slide presentation in which you analyze cost accounting practices to make a recommendation about whether or not to accept a purchase offer at a lower price than normal. You may either record the presentation or write a 2-3 page supporting report.

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

In any manufacturing units, not all the cost will change with the change in production, meaning that not all the costs are variable cost depending on production. There will be few cost which will not be changing along with change in production.

The costs which are directly dependable on production and changing with the change are variable costs. However cost like Rent, depreciation which are not moving and have to pay even if there is no production, are called fixed costs.

Its beneficial to recalculate production cost of pickle considering only variable cost which will help to fix price for a order at lower and competitive level.

Item	Cost	Type
Cucumbers	$                        15,000	Variable
Spices and vinegar	$                        11,000	Variable
Jars and lids	$                        10,000	Variable
Direct labor, paid by the case	$                        30,000	Variable
Line supervisors, on salary	$                        10,000	Fixed
Depreciation on factory	$                        10,000	Fixed
Property taxes on factory	$                           3,000	Fixed
Insurance on factory	$                           1,000	Fixed
Variable Cost	$                        66,000
Fixed Cost	$                        24,000

We can see variable cost is $ 66,000 and this is the cost should be considered for any special order for existing product. Since fixed cost of $24,000 will always be the same, cost affecting fixing the price will be Variable cost.