Essay About Average Full Production Costs And Company’S Pricing Policy

California Creamery Case
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Case Study: California CreameryPROBLEM What costing method should the California Creamery Inc used to improve the company’s pricing policy?OBJECTIVESTo know the difference between the two costing methods.To analyze the costs associated with each individual product.To determine the effect of the two costing method in total company profits.AREAS OF CONSIDERATION14 retail ice cream stores. Sold only the highest quality.A few of the exotic flavors sold in low volumes.Prices are set to yield roughly, a markup of 100% on average full production costs. A proportion of the direct labor used in the production process.Charged the overhead to products at rate of 200% of direct labor costs.Will’s pricing strategy was not accurate as all products were sold at the same retail price.The most significant production costs: Raw materials, special flavor ingredients, and for the acquisition, operation and maintenance of the production equipment. ACAs (Alternative Courses of Action)ACA 1: Compute the full production cost (per gallon) of the Polynesian Fantasy and Vanilla products using: [pic 1] Will’s old costing method Louise’s Suggested method[pic 2]ACA 2: Identify the differences between the two costing methods material in terms of:Their effect on individual costs.The ABC method gives both accurate description of the costs and products profitability Instead of placing the Direct Labour as the product base, the ABC method divides the Overhead costs into various activities based on activitys  consumption in producing the productTheir effect on total company profits.There will be no any effect in the total of the company profit by the change in companys costing method as the whole as costing is an internal process of profitability of a number of product will be compensated by a decrease in others.Monitor the implementation of ABC method in order to examine the profitability of a product.EVALUATION[pic 3]WEIGHTACA 1WTD RATINGACA 2           WTD RATINGWTD RATINGBENEFIT40%    3                     1.2     4     1.6 1.2COST30%    2                       .6     4      .81.2ACCURACY20%    2                       .4      5            1 .8EASE OF IMPLEMENTATION10%    3                       .3      5         .5    .4 TOTAL WTD RATING                              2.5                                           3.9[pic 4]3.6