Assessment 2 Product Pricing Recommendation

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 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. As part of your analysis, address the following items:

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

Deliverable Format

Your team lead wants to share this analysis across remote locations of the organization and is hoping you will set the standard for how analyses and decisions of this type should be presented and supported. Your team has requested a presentation (including slides and notes). Prepare a presentation of at least nine slides using PowerPoint or software of your choice detailing your recommendation and the information you used to make your recommendation. You must provide detailed speaker notes, including citations on slides and in Notes area of the slide. You are required to add a recorded voice-over in which you present and interpret data. The voice-over does not replace your Notes section; you must still have written speaker notes for each slide.