- MHA FPX 5010 Assessment 2 Product Pricing Recommendation
Product Pricing Recommendation
Choosing the proper product pricing strategy is very critical; this is because it is closely related to a company’s profits and sustainability in the market. Thus, in the context of the modern world where consumer trends and the conditions of market competition are such important factors that can change anytime, the application of an all-inclusive and scientific-orientated approach to pricing can be the best strategy.
The purpose of this report is to execute a thorough analysis of the existing cost accounting techniques and the price setting currently used in XYZ Company. In this analysis, I was able to make substantive recommendations on the best strategies to adopt when we are coming up with the right prices so that the objectives of this business can be met hence leading to sustainable profits.
Company’s Overview
The company, XYZ Company, has for the past eight years specialized in the manufacturing and distributing of toffee under the brand “Florida’s Best”. Based in Jacksonville Florida it has its production center that forms the basis of its networks of distribution across the southeastern region of the United States of America (Capella University, n. d. ). The above strategic positioning has enabled to establishment of a strong clientele that understands the manufacture of quality products.
The performance outcomes of the company show a significant level of operational effectiveness, which ranges from 4000 to 11000 cases per month, with the possibility of increasing to 10000 without using more resources and personnel. The toffee is famous for its exclusive and crunchy taste, which is due to the procurement of high-quality components and appropriate combination of ingredients. More remotely, maintaining the quality initiative enhances XYZ Company’s position in the market and its chances of sustaining $20 per case in well-sustained markets.
Variable and Fixed Production Costs
These have variable and fixed costs of the XYZ Company’s production expenses. Semi-variable costs are those expenses that change with alterations in the scale of operations but bear no direct relation to the number of units produced. For instance, as the cases of toffee increase then the cost of the other ingredients used also rises. On the same note, direct labor costs are variable because employees are paid depending on the number of cases that they handle. This implies that the more cases produced the total cost of these materials and labor will be higher hence fulfilling the requirements of variable costs as explained by Nickolas (2022).
MHA FPX 5010 Assessment 2 Product Pricing Recommendation
On the other hand, Fixed costs at Company do not change even when the possibility of the company’s production capacity differs, so long as it stays below the maximum limit of fixed assets. These are the salaries of line supervisors for instance, irrespective of the level of production depreciation of the factory which is more of a fixed cost expensed over time, property taxes on the factory whether the scale at which the factory was operating was high, or low, insurance premiums for the factory whether production is high or low.
These costs are not affected by activities of production and thus firms are bound by these costs throughout the accounting period (Nickolas, 2022). Such a clear segregation of variable and fixed costs makes it easier for the Company to plan its finances strategically, and it also aids in the company’s decision-making in terms of production costs and pricing.
Benefits of Recalculating the Cost of Pickle Production
To re-estimate the production costs at XYZ Company, it is essential to classify all the production costs by variable cost and fixed cost categories. First, we define the variable costs per case, which are the costs of ingredients and direct labor, that change with the number of cases produced. This sum is then divided by the number of cases produced to get the variable cost per case.
The second category is the fixed costs comprising of salaries for the line supervisors, depreciation costs on the factory asset, property taxes, and factory insurance. They do not change with the level of products produced and are therefore expressed on per per-month basis. The total cost per case is then obtained by fixing all the per-case variable costs and then adding a proportion of fixed cost divided by the total number of cases to be produced within a particular period.
Applying this recalculation method yields specific cost figures: as deduced from the above analysis, the variable cost per case is estimative. However, for specific decision-making situations, for example, the profitability of the order in the Super Deals business. This approach eliminates fixed costs because they are already spread across normal production, thus offering a rather refreshed outlook on the marginal revenue that can be obtained for more orders.
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Improved Decision-Making:
Awareness of the percentage of fixed and variable costs enables Acme to utilize the production changes without straining its financial stream. Such a form of cost awareness helps control production capacity excellently, avoiding overproduction and, at the same time, underutilization of resources (Vipond, 2019).
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Strategic Growth and Cost Management:
By understanding better which cost is variable and fixed for each unit and in which area company can look for expansion or possibilities of cutting costs. For example, one could analyze how during off-peak demand periods, the company can work on minimizing variable costs, while fixed costs show the company’s minimum level of activity required to meet its costs.
Financial vs. Managerial Accounting of Production Costs
While financial accounting is oriented towards external users and mandated by law, managerial accounting prepares internal information depending on a company’s goals. Financial accounting primarily focuses on those users who are external to the business including investors, creditors, as well as social and political bodies. It operates under the GAAP standards so that corporations’ financial statements are reconcilable and effectively comparable to those of other companies (Warren et al., 2020).
In financial accounting, production costs are usually grouped and presented under various classifications and are part of the COGS, or incorporated into inventory in the balance sheet. For instance, the balance sheet of the Company consolidates all $70,000 as total production costs without differentiating between variable and fixed costs in the company’s financial statements; the cost of goods sold, or inventory valuation.
On the other hand, managerial accounting is used inside the organization to help the organizational management in decision-making with certain financial and operational data. This form of accounting uses different methods of costing including activity-based costing to assign costs more accurately to products and services. It makes a distinction between variable and fixed costs that in a way gives a view of how cost behaves and affects the profitability margins according to Tuovila (2023).
For example, in managerial accounting, costs would be separated into variable costs such as direct labor, and materials. Extra costs involve other sundry costs like fixed costs, including depreciation, insurance, and other expenses. This accurately analyses the profitability of the specific product such as Super Deals offer.
The advantages and or disadvantages of financial and managerial accounting demonstrate that each system concentrates on different aspects of an organization. Financial accounting helps to maintain the compatibility of the financial information of various organizations which is very much essential for carrying out external analysis and evaluation. It also meets the set legal standards thus creating an avenue for disclosing information to the investors and the regulatory authorities.
Recommended Plan of Action
The recommendation is made based on the row analysis of XYZ Company’s cost accounting practices and updated cost per case of toffee. This decision is supported by sound financial information and the following considerations:
The breakdown between variable and fixed costs shows that the variable cost per case. Which is relatively cheaper than the $5 for the book when discounted. Super Deals offer. Which can partially cover fixed costs, which are costs that are incurred even if the order is rejected. Hence enhancing profit-making capability without a steep increase in variable costs or need for more resources. Entering a new market in Wisconsin means establishing for the future increase in sales and achieving economies of scale.
Conclusion
Thus, the suggestion is to accept the offer presented by the Super Deals for the ordering of 5,000 cases since assessing the revised cost per case and the contribution margin is advisable. Still, the cost eliminated is barely small as the order goes deeper, fixing the fixed costs and increasing profitability. Also, the entry provides new market opportunities for the organization’s growth. Finally, this decision highlights the importance of strategic pricing in increasing profitability and seizing new market opportunities. Read more about our sample MHA FPX 5010 Assessment 1 Accounting Tools and Practices for complete information about this class.
References
Capella University. (n.d.). RN to BSN | online bachelor’s degree | Capella University.
https://www.capella.edu/online-nursing-degrees/bachelors-rn-to-bsn-completion/
Nickolas, S. (2022, July 10). Variable cost vs. fixed cost: What is the difference? Investopedia.
Tuovila, A. (2023, October 10). Managerial accounting. Investopedia.
https://www.investopedia.com/terms/m/managerialaccounting.asp
Vipond, T. (2019). Fixed and variable costs. Corporate Finance Institute.
https://corporatefinanceinstitute.com/resources/accounting/fixed-and-variable-costs/
Warren, C. S., Jones, J. P., & Tayler, W. B. (2020). Financial and managerial accounting. Trang Chủ.
https://thuvienso.hoasen.edu.vn/handle/123456789/13155
Wu, M., Ran, Y., & Zhu, S. X. (2021). Optimal pricing strategy: How to sell to strategic consumers? International Journal of Production Economics, 244, 108367. ScienceDirect.