MBA FPX5010 Assessment2

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Acme Pickle Company – Product Pricing Recommendation Report
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Capella University
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PRODUCT PRICING REPORT 2
Introduction
Super Deals, a grocery chain store in Wisconsin has approached Acme Pickle Company
with an offer to purchase 2,000 cases of pickles for a special promotion. Acme Pickle Company
typically uses a selling price of $20 a case however Super Deals has offered $9.50 per case.
Because our costs have been calculated at $10 per cases management is included to decline this
offer however, after a recalculation of the cost accounting I believe that an error is present that
makes this offer profitable.
Production Costs
Table 1 displays last month’s company cost report. Currently, Acme Pickle Company produces
between eight and ten thousand cases of Acme pickles per year. However, our current equipment
and personnel would allow us to produce up to twelve thousand cases. We sell our cases at $20
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each so last month we saw a profit of $90,000.
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Table 1.
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Acme Pickle Company Cost Report
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Item Cost
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Cucumbers 15,000
Spices and vinegar 11,000
Jars and lids 10,000
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Direct labor, paid by the case 30,000

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Line supervisors, on salary 10,000

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Depreciation on factory 10,000

Property taxes on factory 3,000
Insurance on factory 1,000
Total Costs: $90,000
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Cost per case (9,000 cases produced) $10.00

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Managerial Accounting
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Acme Pickle Company will use managerial accounting when making a decision in this
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business transaction. Financial accounting is used to collect accounting data to create financial
statements and is appropriate when sharing the company’s financial performance with outside
parties such as creditors and investors (Droms and Wright, 2015). Managerial accounting is an
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internal processing of accounting data used for business transactions. It can be used on an as
needed basis for specific projects or offer decisions (Droms and Wright, 2015). . Managerial
accounting is a tool that can be used to look ahead and may use estimated numbers, such as an
estimate of cases sold per month. It is appropriate to use in this situation to determine per unit
cost.
Fixed versus Variable Costs
Acme Pickle Company has an average monthly output of eight to ten thousand cases with
the ability of producing twelve thousand cases without increasing personnel or company
equipment. Fixed costs will not change if our pickle output is increased to twelve thousand
cases.
Company costs typically fall into one of two categories, fixed and variable costs. Fixed
costs remain the same regardless of a company’s level of production while variable costs have a
direct correlation with the company’s level of production (The Strategic CFO, 2013). Acme
Pickle company’s variable costs as listed on Table 1 are Cucumbers, Spices and Vinegar, Jars and
Lids, Direct Labor. The fixed costs, line supervisors, factory depreciation, property taxes and
insurance, will not be affected if we accept the proposition from Super Deals.
Recalculating the Costs
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Acme Pickle Company must recalculate the cost per case with the increase in variable
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costs that would be incurred if production were to be increased by two thousand cases to meet
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the Super Deals proposal. To obtain the cost per unit we must first add together the variable
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costs from last month’s report and then divide that number by cases produced ( $15,000 +
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$11,000 + $10,000 + $30,000 = $66,000) ($66,000/9000 =$7.33). The fixed costs will remain
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the same.
When recalculating the costs we obtain a price per unit of $9 (Table 2). By recalculating
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the costs we obtain a more accurate cost per unit. This number is beneficial in that it provides a
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better picture of profitability and lets Acme Pickle Company know if volume can be increased to
generate more revenue.
Table 2.
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Acme Pickle Company Cost Report Recalculated

Item Cost ($) Cost ($) Per Unit Cost ($) Recalculated
Cucumbers 15,000 1.67 20,000
Spices and vinegar 11,000 1.22 14,667
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Jars and lids 10,000 1.11 13,333

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Direct labor, paid by the case 30,000 3.33 40,000

Line supervisors, on salary 10,000 10,000
Depreciation on factory 10,000 10,000
Property taxes on factory 3,000 3,000
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Insurance on factory 1,000 1,000

Total Costs: 90,000 112,000
Total cases 9,000 12,000
Price per case 10 9
Recommendations
Based on the recalculated costs producing 12,000 cases of pickles will give us a $9.33
cost per case. With an offer of $9.50 per case from Super Deals this provides the company with
a very minor profit of $340. However, since this proposition does not result in a loss I
recommend we accept it. This deal adds additional cash on hand for Acme Pickle Company. It
also provides free advertising in a new market. If the promotion runs successfully it also provides
opportunity for future business with Super Deals. Regardless, Acme Pickle Company should
continue to run production at 12,000 cases and seek out business opportunities.
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References
Droms, W. G., & Wright, J. O. (2015). Finance and accounting for nonfinancial managers: All
the basics you need to know. New York, NY: Basic Books.
The Strategic CFO. (2013). Variable vs Fixed Costs. Retrieved from
https://strategiccfo.com/variable-vs-fixed-cost/
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m

Direct labor, paid by the case 30,000

Line supervisors, on salary 10,000

Depreciation on factory 10,000

Cost per case (9,000 cases produced) $10.00

Fixed versus Variable Costs

Recalculating the Costs

Acme Pickle Company Cost Report Recalculated

Jars and lids 10,000 1.11 13,333

Direct labor, paid by the case 30,000 3.33 40,000

Insurance on factory 1,000 1,000

The Strategic CFO. (2013). Variable vs Fixed Costs. Retrieved from

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