MBA FPX 5010 Assessment 2
Product Pricing Recommendation
Selecting appropriate method of product pricing is crucial due to its close relation with monetary profits and product’s life cycle. There are numerous factors that need to be considered while setting prices, and pricing needs to be done based on data given the high competitiveness, constantly shifting customer preferences, and a rapidly evolving business environment in the modern world (Wu et al. , 2021). In so doing the following specific objectives will be achieved:
The main objective of the study is to provide detailed information on the cost accounting systems and pricing strategies that Acme Pickle Company applies. With this research, it will be easier for our business to ensure that the prices settled correspond to a good flow of information, and the present trends in the market, which will assist the business to thrive.
Company’s Overview
Eight years ago we started a business of producing and selling pickles with the name brand ‘Florida’s Best’ with Acme Pickle Company. Its tighten base of operation is in the southeastern region of the United States, in which lies its production hub in Jacksonville, Florida (Capella University, n. d. ).
This locator has made Acme enjoy a good customer base thanks to a very good quality of its products that caresses the hearts of many clients. Acme provides an example of how it can work well; at present it produces between 8, 000 and 10, 000 cases a month but has the potential for increasing the production to 12, 000 without increasing its resources or personnel. People cut the pickles because they provide a unique taste that is different from that of other foods, and they allow fans to enjoy the foods in the form of crunchiness.
This is why cucumbers are selected and spices and vinegar incorporated in just the right quantity. Acme Pickle Company’s constant insistence on quality is not only the way to advance its position, but also used to maintain such lofty values as $20 per case in its core segments.
Variable and Fixed Production Costs
The production costs at Acme Pickle Company can be broken down into two groups: fixed and adjustable. This is costs that fluctuates in proportion to the quantity that is produced and these are referred to as variable costs. For instance, the price of cucumbers, spices, vinegar, jars and lids increases when cases of pickles produced increases.
I didn’t know that workers at Acme are paid depending on the case, that means that direct labor cost for this company is variable. This indicates that the overall cost of such supplies and the work done escalates as more cases are produced which in the parlance of Nickolas is known as variable costs (2022).
In contrast Acme Pickle Company’s set costs remain fixed provided the company does not exceed its capacity of the current structures it possesses.
Such costs include line supervisor salaries – these amount is not dependent on production, factory depreciation – which accumulates over time irrespective of the level of production, factory property tax- similarly, this has to be paid annually regardless of the output of the factory, insurance charges which still have to be paid even when the factory slows down or even shuts down. These prices do not fluctuate with the production which allows the business to have a set cost at a given period of the accounting time as selon Nickolas (2022).
It is easy for Acme Pickle Company to determine the fixed and variable cost and that facilitate them in long-term strategic planning on price and production.
Benefits of Recalculating the Cost of Pickle Production
Thus, to solve for Acme Pickle Company’s production cost again, everything must be categorized in variable and fixed costs anew. First in this case we find the variable cost per case by summing the price of the spices, vinegar, cucumbers, jar and lids and the direct work cost which varies with the quantity being produced. The variable cost per case is determined from the above by dividing the total amount by the number of cases made.
Here are the set costs: salary of the line managers, costs incurred on the factory plant, taxes on the properties, costs of insurance among others. These are the prices that are not affected by the output levels of production, and therefore have to be observed in a per month basis. Overall costs are then arrived at by adding the variable costs to a fixed cost portion that is arrived at by dividing the total set cost through the number of cases that were produced in that given period of time.
MBA FPX 5010 Assessment 2 Product Pricing Recommendation
Using this way to recalculate gives you exact cost numbers: relative to what we discussed earlier there is approximately $7 of variable cost per case. 33. By the numbers, the set cost allocation for the 9,000 cases that were made pledges about $2. 67 Per case, this would make the total cost per case be ten dollars. We may only consider the latter variable cost to be equal to $7.
It is crucial to note that it’s 33 per case only when making specific decisions like determining whether the order of a Super Deals is profitable or not. Some costs that are fixed are excluded with this method because they are treated as normal output. This makes it easier to determine how much extra orders one is likely to make and therefore how profitable the given restaurant will be.
Benefits to Acme Pickle Company
Acme can make good decisions regarding accepting particular orders at certain prices if they understand marginal cost of additional production which is simply addition production beyond normal orders – the case variable costs.
The additional sales quantities were 2000 and the respective price was $9. a For a production of 150 units, it means that the cost will be 50 each, which is above the marginal cost of seven dollars. 33 but lower than the total cost of 10, which suggests that it is still a little profitable (Nickolas, 2022).
It can better coordinate changes in production without compromising their financial safety if they know how fixed and variable costs are distributed. Where precise cost is highly important, controlling activities and rates is highly effective to prevent over utilizing resources or making them in excess (Vipond, 2019).
Acme is now aware of the controllable and non-controllable costs, which affect the production unit, so they can focus on trying to increase or decrease costs more selectively. For instance, if demand is low, the variable costs should be reduced, or expenditure on adverts can be decreased during such periods. I still believe that fixed costs establish the minimum level of operation that is required to meet the costs.
Financial vs. Managerial Accounting of Production Costs
In a business, cost accounting and financial accounting serve different people who have diff erent objectives. The financial accounting type is intended mainly for individuals who are more or less acquainted with the results of the business’s performance, including investors, suppliers, and governmental agencies. It aligns itself with the Generally Accepted Accounting Principles (GAAP) as a way of ensuring that financial statements from different firms are compiled and reported in a mutually consistent manner (Warren et al. , 2020).
For instance, Acme Pickle Company’s financial accounting records reflect a single cost figure of $90000 at the manufacturing level. These are grouped under ‘cost of sales’ or ‘inventory expenses’ but do not differentiate between variable and wasteful costs.
However, managerial accounting is intended for the internal management of the business and it provides detailed information regarding the financial and operational condition. Other costing techniques such as ABC is widely used in this type of accounting to assist in offering appropriate prices to products and services.
According to Tuovila (2023), it conveys what is variable and fixed cost and other information regarding the way in which costs vary with time and how this impacts on the bottom line. For instance, when it comes to the accounting for specific organisational functions in Acme, costs could be easily distinguished as variable costs such as direct labour and materials or fixed costs including depreciation of tangible resources and insurance costs among others.
It also helps make sense of which products or even which promotional avenues such as the Super Deals offer, would be most profitable.
The advantages and disadvantages of financial and management accounting mirror each other and highlight how each technique is utilized and specialized in a company in a contrasting manner. Financial accounting ensures that all the information in any company is consistent and easily comparable which is very crucial for analyzing and evaluating a business from an outsider’s perspective.
Also, there is speculation and it complies with the law that allows buyers and officials to feel secure. The main issues associated with financial accounting include: inability to provide information that can be useful to internal management and that is in the desired format and tendency to aggregate data which makes it difficult to ‘sweep down and see’ distinct patterns about the nature of costs incurred and the efficiency of operations conducted.
Their presents and emphasis on internal occurrences within the company may not make it as helpful for outsiders as the standard forms. Save for management accounting, there may be bias readings of cost as well as success depending on the belief system and approach.
Each of the types of accounting mentioned above is illustrated by these different features as to how each type would be appropriate for each company, depending on their needs and requirements for that particular period.
Recommended Plan of Action
Therefore, based on the new calculations to the cost accounting of Acme Pickle Company and the newer offer from Super Deals at $9 for the case, it is advised that the company accepts the offer. To place the order at 10 dollars per case, this is 10 dollars per case for the 2,000-case order: Capella University, n. d. ).
When we split costs to variable costs and fixed costs it appears that variable cost is only $7 per case. 33, which is still a couple of dollars more than Super Deals, although they did have it advertised for $9. 50. Variable costs that the Acme Pickle Company has incurred and has to pay even if the sale has not been accepted.
The extra $2. This would enable the company to offset some of these costs since 17 dollars per case ($9. 50 minus $7. 33) accrued from the profit made from each case is allocated towards the cost of manufacturing it.
If the offer is taken, then there will another $19,000 of income for the company from the 2,000 cases of the beverage at $9. 50 per case. This means that fixed costs will be covered in part with $4,340 from the 2,000 cases of the beverage at $2. 17 per case thereby increasing overall profits without much addition to variable cost and resource.
The expansion into a new market in Wisconsin may in the future allow for expansion to new areas as sales increase as well as opportunities for larger economies of scale. The second important feature of iPhone that helps Apple to dictate its terms is the price – $9 less than an average iPhone.
Or, $50 per case will cost Acme Pickle Company less than what they estimated the cost to be at $10. $00 per case, but considering the contribution margin that is gotten from the Super Deals order, this offer is worthy being accepted as per the management accounting.
Conclusion
The cost per case and the contribution margin ratio analysis supports the decision of the company that accepting Super Deals’ deal for the 2,000 case is what should be done. In this respect, the sale, even after the discount, helps the business to cover fixed cost in a rather more effective way and helps to make the business even more profitable.
Growth with new markets is also possible with the right entry methods, and so there are great opportunities for growth. Lastly, this choice demonstrates how significant having a smart price is for generating more income and capitalizing on the latest opportunities in the marketplace. Read more about our sample MBA FPX 5002 Assessment 2 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.
https://www.investopedia.com/ask/answers/032515/what-difference-between-variable-cost-and-fixed-cost-economics
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.