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