OVERVIEW: Create a 9-slide presentation and a 2-3 page supporting report in which you analyze cost accounting practices to make a recommendation about whether or not to accept a purchase offer at a lower price than normal.
- Skillsoft. (n.d.). Basic accounting concepts for non-financial professionals [Tutorial].
- Yu, R. (2017, June 1). Whirlpool says LG, Samsung dumping washers: Appliance maker asks Trump administration for import barriers. USA Today, B4.
- Packard, C., & Arnold, B. (2017, October 17). Broken trade laws and rising protectionism: Whirlpool fights imports, but who are they really helping? The Examiner.
- Price Setting
- Gagnon, E. (2009). Price setting during low and high inflation: Evidence from Mexico. The Quarterly Journal of Economics, 124(3), 1221–1263.
- Copeland, A., & Shapiro, A. H. (2016). Price setting and rapid technology adoption: The case of the PC industry. Review of Economics and Statistics, 98(3), 601–616.
- Unfair Trade Practices
The following articles provide details on an International Trade Commission (ITC)-related scenario in which Whirlpool claims Samsung and LG are using unfair trade practices by illegally undercutting prices on washing machines sold in the United States by selling the units for less than their production cost:
SCENARIO: 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 more—this 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
- Spices and vinegar11,000
- Jars and lids10,000
- Direct labor, paid by the case30,000
- Line supervisors, on salary10,000
- Depreciation on factory 10,000
- Property taxes on factory3,000
- Insurance on factory1,000
- Total Costs:$90,000
- Cost per case (9,000 cases produced) $10.00
- Create at least 9 slides detailing your recommendation and the information you used to make your recommendation.
- Include additional details as slide notes.
- Supporting information. Choose one of the following options:
- Create a 2–3 page report to support your slides.
- Single-spaced paragraphs.
- In addition to the presentation or report materials, include:
- Title (slide or page).
- References (slide or page).
- Appendix with supporting materials.
- At least two APA-formatted references.