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Product Pricing Recommendation
MBA FPX 5010 Assessment 2 critical decision is to decide on the correct product prices because they affect a firm’s revenue and sustainability in the market. As consumers’ preferences and market conditions are highly volatile in today’s world for any organization that wants to sustain itself in the competitive market, the perfect and scientific approach to selling price determination is very crucial (Wu et al., 2021). The following is the research proposal for the report that seeks to assess the cost accounting practices and price determination at Acme Pickle Company. Implementing this analysis would help in making the right pricing decisions since they are based on the current market characteristics, which is critical to the achievement of long-term business goals and objectives.
Company’s Overview
Based in Jacksonville, Florida, it has a production facility that delineates the company’s robust presence across the southeastern region of the United States of America (Capella University, n. d. ). Such a strategic positioning has proved beneficial for Acme in that it has created a loyal customer base that understands the value of quality goods. Acme can be considered very efficient, as they can produce between 3000 and 7000 cases in a month or scale up to 10000 without needing extra resources and a workforce. MBA FPX 5010 Assessment 2 pickles are famous for their original taste and crunch, which results from the proper choice of cucumbers and the proportion and choice of spices and vinegar. Acme Pickle Company’s focus on quality adds to the firm’s competitive advantage and its capacity to sustain the $30-per-case price in favorable markets.
Variable and Fixed Production Costs
The expenses that Acme Pickle Company has as the result of its manufacturing process include variable and fixed ones. These costs vary over the level of production and are, therefore, termed variable costs. Variable costs are those costs that alter according to the level of activity. For example, with higher amounts of pickle cases realized, the cost of cucumbers, spices, vinegar, jars, and lids escalates. MBA FPX 5010 Assessment 2 direct labor cost in Acme is variable since the employees incur a cost that is proportional to the number of cases they work on. This means that the more cases produced, the higher the total cost of this material and labor, which is in line with the characteristics of variable cost mentioned by Nickolas (2022).
On the other hand, fixed costs at Acme Pickle Company can stay the same, depending on production levels, while they are within the capacity of the firm’s facilities. These include the line supervisors’ salaries, which are paid irrespective of output; factory depreciation, which is cost as related to time and not as it relates to the volume of production; factory property tax, which may be paid annually regardless of the facility’s operational intensity; insurance premium which has to be paid whether or not there is any production, reduced or stopped. MBA FPX 5010 Assessment 2 costs do not change with production, altering the financial obligation of the company to remain steady throughout the accounting period (Nickolas, 2022). The clear division of variables and fixed costs is beneficial for the company’s strategic financial management; it contributes to the effective decision-making process in the sphere of production and pricing policy.
MBA FPX 5010 Assessment 2 Manufacturing Process
The expenses that Acme Pickle Company has as the result of its manufacturing process include variable and fixed ones. These costs vary over the level of production and are, therefore, termed variable costs. Variable costs are those costs that alter according to the level of activity. For example, with higher amounts of pickle cases realized, the cost of cucumbers, spices, vinegar, jars, and lids escalates. The direct labor cost in Acme is variable since the employees incur a cost that is proportional to the number of cases they work on. This means that the more cases produced, the higher the total cost of this material and labor, which is in line with the characteristics of variable cost mentioned by Nickolas (2022).
On the other hand, fixed costs at Acme Pickle Company can stay the same, depending on production levels, while they are within the capacity of the firm’s facilities. These include the line supervisors’ salaries, which are paid irrespective of output; factory depreciation, which is cost as related to time and not as it relates to the volume of production; factory property tax, which may be paid annually regardless of the facility’s operational intensity; insurance premium which has to be paid whether or not there is any production, reduced or stopped.
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These costs do not change with production, altering the financial obligation of the company to remain steady throughout the accounting period (Nickolas, 2022). The clear division of variables and fixed costs is beneficial for the company’s strategic financial management; it contributes to the effective decision-making process in the sphere of production and pricing policy.
It is also advised that Super Deals’ offer for the 3,000 cases order be accepted, which was calculated using the cost per case and contribution margin analysis. Nevertheless, the order boosts the number of fixed expenses and the enterprise’s profit at a disconfirmed price. Also, the initiation of a new market provides an opportunity to expand the business. Last but not least, this decision raises the issue of the importance of a strategic approach towards pricing in an attempt to improve operational profits and adapt to new opportunities in the market.
Financial vs. Managerial Accounting of Production Costs
Although financial and managerial accountancy are specializations in the same field, they have totally different goals and are used for various targets serving various parties and company needs. Financial accounting is mainly focused on external users like shareholders, creditors, and other official bodies. It operates within the GAAP standards to make sure that the financial information being provided complies with the kinds and amounts of the information supplied by other organizations (Warren et al., 2020). The cost of production in financial accounting is usually grouped and presented under some fewer accounts, which form part of the cost of sales or appear in the balance sheet – inventory. For instance, while analyzing Acme Pickle Company’s financial reports, the total production cost would be summarized and represented by $70,000 in the financial statements; these costs are referred to as the cost of goods sold or specified in the inventory valuation without separating the variable and fixed cost elements.
MBA FPX 5010 Assessment 2 Product Pricing Recommendation
On the other hand, managerial accounting is prepared with the intention of aiding internal management in their decisions by offering comprehensive financial and operational data. This form of accounting uses specific methods for charging expenses, like the activity-based cost system for finer costing. Variable and fixed costs are set out to help understand cost behavior and its effect on the margins of profitability, according to Tuovila (2023). For instance, in managerial accounting at Acme, costs would be classified under variable costs like direct labor and materials. In the fixed costs category, there would be items such as depreciation and insurance so that the level of profitability in a particular product or even a promotional tool such as the Super Deals offer could be more effectively ascertained.
Comparing the essentials of financial and managerial accounting shows the commonalities and differences between the two methods used within an organization. Financial accounting also standardizes the sort and quality of data companies report, which aids outside analysis and valuation immensely. In addition to the legal obligations, it also presents information to investors and regulators.
Recommended Plan of Action
Therefore, having a thorough assessment of the current cost accounting figures of Acme Pickle Company, coupled with the revised cost per case, this policy recommendation is meant to endorse the company’s strategy to embrace the Super Deals offer at a price of $12 per case. Sudhakar sells each case for fifty US dollars for the order of two thousand cases (Capella University n. d. ). MBA FPX 5010 Assessment 2 decision is supported by sound financial information and the following considerations: This decision is supported by sound financial information and the following considerations: Alternatively, if one is to separate variable and fixed costs, one is able to discover that the variable cost per case is only seven dollars.
Now, at 37$ it is far from reaching the previously discussed $ 12 mark, though that seems quite fair to us. Yes, please note that at Super Deals, the price was $40— the remaining $3. To us, $20 per case proportioned by all the cost of production ($9. 50 – $7. 33) would be used to cover part of Acme Pickle Company’s fixed costs, which exist regardless of the order acceptance. King, the offer would bring incremental revenues of $19 000 (2000 cases * $9. 50) and increase revenues from fixed costs of $4340 (2000 cases * $2. 17), enhancing the profit without escalating significantly the variable costs or the need for resources.
The testing of a new market in Wisconsin is good for the prospect and expansion; consequently, it can result in increased revenue as well as bargaining power in the procurement of raw materials. The reduced rate has been established at $9 for us. Costs of $50 per case can be considered low and even dwindle under this firm’s customary calculated amount of $10. In this case, the contribution margin accruing from this order justifies the acceptance of the offer from an accountable managerial standpoint.
Conclusion
It is also advised that Super Deals’ offer for the 3,000 cases order be accepted, which was calculated using the cost per case and contribution margin analysis. MBA FPX 5010 Assessment 2 Nevertheless, the order boosts the number of fixed expenses and the enterprise’s profit at a disconfirmed price. So, the initiation of a new market provides an opportunity to expand the business. Last but not least, this decision raises the issue of the importance of a strategic approach towards pricing in an attempt to improve operational profits and adapt to new opportunities in the market.
References
Capella University. ( .d.). R to BSN | online bachelor’s degree | Capella University. h tps://www.capella.edu/online-nursing-degrees/bachelors-rn-to-bsn-completion/
Nickolas, S. (2022, July 10). V riable cost vs. fixed cost: What is the difference? I Investopedia. h tps://www.investopedia.com/ask/answers/032515/what-difference-between-variable-cost-and-fixed-cost-economics
Tuovila, A. (2023, October 10). M managerial accounting. I Investopedia. h tps://www.investopedia.com/terms/m/managerialaccounting.asp
Vipond, T. (2019). F fixed and variable costs. C corporate Finance Institute. h tps://corporatefinanceinstitute.com/resources/accounting/fixed-and-variable-costs/
Warren, C. S., Jones, J. P., & Tayler, W. B. (2020). Financial and managerial accounting. T and 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. S ScienceDirect. h tps://doi.org/10.1016/j.ijpe.2021.108367
