MontgomeryK_M3_A2.doc Cost and Decision-Making Analysis Cheryl

MontgomeryK_M3_A2.doc

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.
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
o



Calculate the break-even point in units for each product. Explain your
methodology.
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.
Write a 5–6-page report in Word format. Apply APA standards to citation of sources. Use the
following file naming convention: LastnameFirstInitial_M3_A2.doc.
By Wednesday, December 3, 2014, deliver your assignment to the M3: Assignment 2
Dropbox.
Assignment 2 Grading Criteria

Maximum
Points

Calculated the company's overall break-even point in total
sales dollars and explained your methodology.

32

Calculated the break-even point in units for each product in
the scenario and explained your methodology.

52

Explained what the overall profit of the company will be if the
company sells exactly the break-even quantity of each
16
product and showed your results.
Compared and explained if this company should be using a
job-order or process-costing system to accumulate costs.

80

Wrote in a clear, concise, and organized manner;
demonstrated ethical scholarship in accurate representation
20
and attribution of sources; and displayed accurate spelling,
grammar, and punctuation.
Total:

200