Reference no: EM132589167

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 Role

You are the account manager for Acme Pickles.

Requirements

Question 1: Explain why some production costs are variable and some are fixed.

Question 2: Analyze the benefit of recalculating the cost of pickle production.

1. How would you recalculate it?
2. What would the result be?

Question 3: What is the benefit to the company of recalculating the cost?

Question 4: Analyze how financial accounting of production cost differs from managerial accounting of production cost.

Question 5: Explain the difference between the two accounting methods.

Question 6: Identify the benefits and drawbacks of each method.