Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The Acme Pickle Company has distributed pickles under the Florida's Best brand for eight years from its production facility in Jacksonville, Florida. It sells the

The Acme Pickle Company has distributed pickles under the "Florida's Best" brand for eight years from its production facility in Jacksonville, Florida. It sells the pickles to stores in the southeastern United States. Acme normally produces between 8,000 and 10,000 cases of pickles a month but has the capacity to produce 12,000 cases without adding equipment or personnel.

The owner of a twenty-store supermarket chain in Wisconsin, called Super Deals, visits friends in Florida and is impressed with the quality of "Florida's Best" pickles. He approaches you, an Acme Pickle account manager, with an offer to buy 2,000 cases of pickles to use in a special promotion at his stores. He is thinking of something such as:

"Free jar of Florida's Best pickles with every purchase of forty dollars or morethis month only!"

He offers Acme a price of $9.50 per case, knowing that it is a very substantial discount from the normal selling price of $20 a case. Acme's management is inclined to turn the offer down, because their cost is calculated at $10.00 a case. They believe they would lose money if they sold at $9.50 a case. You, on the other hand, believe that some errors have been made in the cost accounting.

Your Role

You are the account manager for Acme Pickles.

Requirements

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.

  • 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

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Strategic Audits For Continuous Business Improvement

Authors: Parbatee Chang

2nd Edition

1507679483, 978-1507679487

More Books

Students also viewed these Accounting questions