B6021 Module 3 Assignment 2 LASA 1 Cost and Decision-Making Analysis

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Assignment 2: Required Assignment 1—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:

• Velcro Metal Nylon
• Normal annual sales volume 100,000 units 200,000 units 400,000 units
• Unit selling price \$1.65 \$1.50 \$0.85
• Variable cost per unit \$1.25 \$0.70 \$0.25
• Total fixed expenses are \$400,000 per year.
• 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. Respond to the following:

a)      Calculate the company's overall break-even point in total sales dollars. Explain your methodology (approximately 2 pages).

b)      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):

c)       Calculate the break-even point in units for each product. Explain your methodology.

d)      Determine the overall profit of the company if the company sells exactly the break-even quantity of each product. Present your results.

e)      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

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