MBA FPX5010 Assessment 2
ACME PICKLE COMPANY Florida Best Pickles Capella University
Acme Pickle Company
Acme Pickle Company Cost Report
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).
The internal cost which includes product vs. period costs, job order costing, process costing, allocation of manufacturing overhead, and costing of joint products.
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.
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.
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