Product Costing at Fine Foods: Is It a Symptom or the Problem?

Abstract

This case focuses on issues that appear to be problems but are symptoms of more fundamental problems. These are common issues in management accounting and management control situations. It also provides a good overview of product costing and performance evaluation, accounting for special orders, and agency costs and benefits including non-quantifiable costs and benefits. The case is based on an actual food processing company that had these issues. It can be used to cover manufacturing accounting in many other contexts as well.

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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Resources

Figure 1: Fine Foods, Inc. Organization Chart

Figure

Figure 2: Production Process for Product MP

Figure

Table 1: Fixed Production Costs Allocated to Products

Workshop Storage

Environment

Electricity

Maintenance Mechanics

Quality

Engineering

Production Line Maintenance

Production Line Cleaning

Lower Production Management

Handling Raw Material Department

Production Office Services

Production Manager and Related Costs

Warehouse/Storage

Internal Logistics/Resource Planning

Sanitation

Vehicles

Building Maintenance

Steam Boiler

Table 2: Contribution Margins and Operating Profit

Gross Sales

(Standard discounts)

(Activity discounts)

(Special discount activities for customers)

Net Sales

(Variable manufacturing cost)

(Fixed manufacturing cost)

(Freight out)

Contribution Margin 1

(Media)

(Sales promotion)

Contribution Margin 2

(Marketing and sales)

Contribution Margin 3

(Top management)

(Business administration)

(Information system)

(Human resources)

(Supply chain)

(Production)

(External logistics for finished goods)

(Mark up – Manufacture expenditures)

(Other fixed costs)

Contribution Margin 4

(Structural costs)

(Total depreciation)

Operating Profit

This case was prepared for inclusion in Sage Business Cases primarily as a basis for classroom discussion or self-study, and is not meant to illustrate either effective or ineffective management styles. Nothing herein shall be deemed to be an endorsement of any kind. This case is for scholarly, educational, or personal use only within your university, and cannot be forwarded outside the university or used for other commercial purposes.

2024 Sage Publications, Inc. All Rights Reserved

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