MBA FPX 5010 Assessment 2 Product Pricing Recommendation – Acme Pickle Company
MBA FPX 5010 Assessment 2 Product Pricing Recommendation – Acme Pickle Company
Name
Capella university
MBA-FPX5010 Accounting Methods for Leaders
Prof. Name
Date
Financial vs. Managerial Accounting
Financial Accounting
Financial accounting provides a broad view of an organization’s financial position as a whole. It is primarily intended for external stakeholders, such as shareholders, investors, and banks, who use this information for decision-making purposes, including loan approvals. The reports generated can be on a weekly, monthly, quarterly, or annual basis. These reports must adhere to Generally Accepted Accounting Principles (GAAP) and the standards set by the Financial Accounting Standards Board (FASB).
Managerial Accounting
In contrast, managerial accounting focuses on the internal aspects of an organization, often zooming in on specific operating units within the company (Marshall, McManus, & Viele, 2017). The information derived from managerial accounting is used by internal personnel to make decisions regarding production and operational processes. Reports in this field can also be generated daily, weekly, monthly, or annually but are not bound by any standardized reporting guidelines.
Acme Pickle Company: Production Analysis
Acme Pickle Company currently produces 9,000 units, each sold at $20.00. The cost per unit is calculated at $10.00. Acme is considering an offer to produce an additional 2,000 units at a significantly lower price. Notably, the company has the capacity to increase production to 12,000 units without requiring additional equipment or personnel. However, the company currently does not differentiate between fixed and variable costs when determining profit margins.
Variable vs. Fixed Costs
Variable Costs
Variable costs change directly with the level of production (Wilkinson, 2013). For Acme Pickle Company, these include cucumbers, spices, vinegar, jars, lids, and direct labor, which is paid on a per-case basis.
Fixed Costs
In contrast, fixed costs remain constant regardless of the production volume (Wilkinson, 2013). Acme’s fixed costs include line supervisors’ salaries, factory depreciation, property taxes, and insurance.
Total Production Cost: 9,000 Units
| Variable Cost | Fixed Cost |
|---|---|
| Cucumbers: $15,000.00 | Line supervisors: $10,000.00 |
| Spices/Vinegar: $11,000.00 | Depreciation on factory: $10,000.00 |
| Jars/Lids: $10,000.00 | Property taxes: $3,000.00 |
| Direct Labor: $30,000.00 | Insurance on factory: $1,000.00 |
| Total: $66,000.00 | Total: $24,000.00 |
| Grand Total: $90,000.00 |
- Variable cost per case: $66,000 ÷ 9,000 = $7.33 per case
- Total production cost per case: $90,000 ÷ 9,000 = $10.00 per case
Cost Comparison: 9,000 vs. 11,000 Cases
| Cost Category | Variable Cost per Case | Fixed Cost per Case |
|---|---|---|
| Cucumbers | 1.667 | |
| Spices/Vinegar | 1.222 | |
| Jars/Lids | 1.111 | |
| Direct Labor | 3.333 | |
| Total Variable Cost | 7.333 | 2.666 |
| Total Fixed Cost | 9.999 |
- Cost to produce 9,000 cases: $66,000 (variable) + $24,000 (fixed) = $90,000
- Cost to produce 11,000 cases: $80,663 (variable) + $24,000 (fixed) = $104,663
Profit Analysis: 9,000 vs. 11,000 Cases
| Profit Category | 9,000 Cases | 11,000 Cases |
|---|---|---|
| Sales Revenue (9,000 cases) | $180,000 | $180,000 |
| Additional Revenue (2,000 cases @ $9.50) | $19,000 | |
| Total Revenue | $180,000 | $199,000 |
| Total Cost | $90,000 | $104,663 |
| Profit | $90,000 | $94,337 |
By producing the additional 2,000 units, Acme Pickle Company could increase its profit from $90,000 to $94,337, despite the lower price for the extra units.
Plan of Action
The ultimate goal for Acme Pickle Company is to maximize profit. Managerial accounting will play a crucial role in identifying the financial targets and making informed operational decisions to achieve desired outcomes in financial accounting.
References
Marshall, D., McManus, W., & Viele, D. (2017). Accounting: What the numbers mean (11th ed.). New York, NY: McGraw-Hill Education.
Wilkinson, J. (2013). Variable vs Fixed Costs Definition. Retrieved July 12, 2018, from https://strategiccfo.com/variable-vs-fixed-cost/
