Product Pricing

Recommendation
Acme Pickle Company
Capella University
Financial vs Managerial Accounting
Financial Accounting
• Looks at financial position as an
organization/whole
• For external shareholders,
investors and banks (for loans)
• Reports run weekly, monthly,
quarterly or annually
• Must following generally accepted
accounting principles and FASB
Managerial Accounting
• Focuses on “operating units within
the organization” (Marshall,
McManus, & Viele, 2017)
• Used internally for
production/operational procedures
and decisions
• Reports can be run daily, weekly,
monthly or annually
• No guidelines for reporting standards
Acme Pickle Company
• Current production is 9,000 units, being sold at $20.00 per unit
• Current cost per unit is calculated at $10.00 per unit
• Faced with an offer of producing 2,000 more units (cases) at a significantly
lower price
• Acme Pickle Co has the ability to produce up to 12,000 units without adding
more equipment or personnel
• Current cost per unit being used for determining profit does not differentiate
between fixed and variable costs
Variable vs Fixed Costs
Variable Costs
• Changes with production
volume (Wilkinson, 2013)
• For Acme Pickle Co:
• Cucumbers
• Spices and vinegar
• Jars and lids
• Direct labor (paid by the case)
Fixed Costs
• Remains constant regardless of
activity or production volume
(Wilkinson, 2013)
• For Acme Pickle Co:
• Line supervisors (salary)
• Factory depreciation
• Factory property taxes
• Factory insurance
 Total Production Cost = 9,000 Units
Variable Cost Fixed Cost

Cucumbers $15,000.00

Spices/Vinegar $11,000.00

Jars/Lids $10,000.00

Direct Labor, paid by the case $30,000.00

Line supervisors, on salary $10,000.00

depreciation on factory $10,000.00

property taxes on factory $3,000.00

insurance on factory $1,000.00

$66,000.00 $24,000.00 $90,000.00

Variable Cost = 66,000/9,000 = $7.33 per case

Total Production Cost = 90,000/9,000 = $10.00 per case

 Cost to produce 9,000 vs 11,000 cases

Variable cost per case Fixed cost per case

Cucumbers 1.667

Spices/Vinegar 1.222

Jars/Lids 1.111

Direct Labor, paid by the case 3.333

7.333 2.666 9.999

9,000 cases 66000 24000 90000 <- Cost to produce 9,000 cases

11,000 cases 80663 24000 104663 <- Cost to produce 11,000 cases
Profit with 9,000 cases vs 11,000 cases

Profit w/ 11,000 cases Profit w/ 9,000 cases

9,000*$20.00 = $180,000 9,000*$20.00 = $180,000

2,000*$9.50 = $19,000 $180,000.00

$180,000 -$90,000.00

$19,000 $90,000.00

$199,000

($104,663)

$94,337.00
Plan of Action

End result: MAXIMIZE PROFIT

• Use managerial accounting to identify financial goals and make
operational/production decisions to produce results for financial accounting
References

• Marshall, D., McManus, W., & Viele, D. (2017). Accounting: What

the numbers mean (11th ed.). New York, NY: McGraw-Hill
Education. 
• 
• Wilkinson, James (2013). Variable vs Fixed Costs Definition.
Retrieved on July 12, 2018 from https
://strategiccfo.com/variable-vs-fixed-cost/