MBA FPX 5010 Assessment 2 Product Pricing Recommendation – Acme Pickle Company MBA-FPX5010 Accounting Methods for Leaders Product Pricing Recommendation – Acme Pickle Company

Acme Pickle Company distributes “Florida’s Best” brand pickles to stores in the southeastern United States. We typically produce between 8,000 and 10,000 cases of pickles each month, but we have the capacity to produce up to 12,000 cases without the need for additional equipment or personnel.

The owner of Super Deals, a supermarket chain with twenty locations in Wisconsin, was impressed by the quality of “Florida’s Best” pickles during a visit to Florida. He approached me with an offer to purchase 2,000 cases of pickles for a special promotion at his Super Deals stores. The promotion would read, “Get a free jar of Florida’s Best pickles with every purchase of forty dollars or more—this month only!”

He proposed a price of $9.50 per case. I understand that you may be inclined to reject this offer, as our current cost is calculated at $10.00 per case, leading you to believe we would incur a loss if sold at $9.50. However, we will conduct some calculations to assess whether we should consider the offer from Super Deals.

Financial vs. Managerial Accounting

The current cost of $10 per case is derived from financial accounting methods. There are notable differences between managerial accounting and financial accounting. Financial accounting is primarily used for external stakeholders such as investors and creditors, while managerial accounting serves internal management. Managerial accounting aids in planning decisions that management must make (Marshall, McManus & Viele, 2020). In contrast, financial accounting focuses more on scorekeeping and maintaining historical records (Marshall, McManus & Viele, 2020). Nevertheless, financial accounting data serves as a foundation for the planning process in managerial accounting (Marshall, McManus & Viele, 2020). Planning is a crucial aspect of management, suggesting that control is achieved through feedback. Actual results (financial accounting) are compared to planned results (managerial accounting), and any discrepancies necessitate adjustments.

Recalculation

We will recalculate these costs using a managerial approach, which utilizes past financial accounting reports to inform future planning. This allows us to explore the potential for additional revenue and verify whether our pricing strategies remain valid. We are currently positioned to engage an additional vendor, which could significantly boost revenue. Let’s examine some calculations related to this opportunity.

Last month, we produced 9,000 cases and sold them at the standard price of $20 per case. This production volume falls within our average range of 8,000 to 10,000 cases per month. The total production cost for January was $90,000, equating to $10 per case. The sales price of $20 per case resulted in a profit of $90,000. The cost report comprises both variable and fixed costs. Variable costs are incurred per case produced, while fixed costs remain constant regardless of production levels. Variable costs include supplies and direct labor, whereas fixed costs encompass salaries and property expenses (e.g., taxes, insurance, and depreciation). Given the presence of both fixed and variable costs, the break-even analysis must be recalculated for each production volume. The opportunity presented by Super Deals involves selling an additional 2,000 cases beyond our average monthly production of 8,000 to 10,000 cases. However, Super Deals is requesting a discounted rate to initiate sales with a special offer to their customers. Instead of our average sales price of $20 per case, they propose purchasing cases at $9.50 each.

To evaluate the viability of this venture, we will conduct two break-even analyses: one assuming a minimum sale of 8,000 cases per month and another assuming a maximum sale of 10,000 cases per month, both including the additional 2,000 cases for Super Deals. We will start with the lower typical volume of 8,000 cases, plus the additional 2,000 cases for Super Deals, resulting in a total production of 10,000 cases. The break-even point for 10,000 cases would be $9.73 per case. Although this exceeds the price offered by Super Deals, a further examination of the returns indicates that an additional profit of $4,340 would still be realized.

We can also analyze the maximum production scenario, which represents the upper limit of our standard range of 8,000 to 10,000 cases sold at 10,000 cases, plus the additional 2,000 cases for the new vendor. Upon completing this analysis, we found that the average cost per case would be $9.33, which is below the discounted rate proposed by Super Deals. This indicates that we would still achieve an additional profit of $4,340.

Recommendation

I recommend that we accept Super Deals’ offer for a trial of 2,000 cases, with the hope of establishing a long-term