Reference no: EM131517877
Assignment: Cost and Decision-Making Analysis.
Cheryl Montoya picked up the phone and called her boss, Wes Chan, Vice President of Marketing at Piedmont Fasteners Corporation.
Cheryl: "Wes, I'm not sure how to go about answering the questions that came up at the meeting with the President yesterday."
Wes: "What's the problem?".
Cheryl: "The president wanted to know the break-even point for each of the company's products, but I am having trouble figuring them out."
Wes: "I'm sure you can handle it, Cheryl. And, by the way, I need your analysis on my desk tomorrow morning at 8:00 sharp in time for the follow-up meeting at 9:00."
Piedmont Fasteners Corporation makes three different clothing fasteners at its manufacturing facility in North Carolina. Data concerning these products appear below:
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Velcro
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Metal
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Nylon
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Normal annual sales volume
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100,000 units
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200,000 units
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400,000 units
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Unit selling price
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$1.65
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$1.50
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$0.85
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Variable cost per unit
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$1.25
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$0.70
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$0.25
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All three products are sold in highly competitive markets, so the company is unable to raise its prices without losing unacceptably large numbers of customers.
The company has a very effective lean production system, so there is no beginning or ending work in process or finished-goods inventories.
Using the module readings, the Argosy University online library resources, and the Internet, research break-even point and costing systems. Analyze the case based on your research and what you have learned so far in the course.
Respond to the following:
• Calculate the company's overall break-even point in total sales dollars. Explain your methodology (approximately 2 pages).
• Of the total fixed costs of $400,000: $20,000 could be avoided if the Velcro product were dropped, $80,000 if the Metal product were dropped, and $60,000 if the Nylon product were dropped. The remaining fixed costs of $240,000 consist of common fixed costs such as administrative salaries and rent on the factory building that could be avoided only by going out of business entirely (approximately 2 pages):
o Calculate the break-even point in units for each product. Explain your methodology.
o Determine the overall profit of the company if the company sells exactly the break-even quantity of each product. Present your results.
• Evaluate costing systems for this company. Explain if this company should be using a job-order or process-costing system to accumulate costs (1 page).
Be sure to include your calculations in Microsoft Excel format.
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