Essay on Blackcompany

1436 Words Mar 16th, 2016 6 Pages
Black Manufacturing Company
Black Manufacturing produced a single product called the Great Beast. During the past three weeks, Lee High, the new cost accountant, had observed that production efficiency and input prices were constant but that output varied considerably. These three weeks were thought of as typical by sales representative, who said that they could be taken as average. Production costs were accumulated and accounted for under several different groups listed below.
Units of
Output
Week 1
Week 2
Week 3

Direct
Materials

Direct
Labor

Indirect
Labor

Indirect
Materials

Electricity

Factory
Insurance

$300
375
450

$500
625
750

$180
200
220

$300
300
300

$115
125
135

$125
125
…show more content…
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Lee was very pleased with his chart, particularly the part about different decision rules. When the chart was finished, Lee passed it on to Mr. Charlton Black, who was the owner, president and chief decision maker at Black Manufacturing. Charlton, who was skeptical of “scientific analysis,” studied Lee High’s chart and underlying data. That night Charlton said to his lawyer, with whom he was having dinner, “I finally have found the kind of practical fast-track analyst I need. This kid, Lee High, has just developed a set of decision rules that will solve all my pricing and profit problems.”
The next day Charlton Black sent a memo to the sales representative and others who were involved in pricing Great Beast. Among other things the memo stated, “Everyone should study
Mr. High’s chart, especially the decision rules he was generated through complex cost accounting procedures. From now on, all pricing decisions will follow these rules, and under no condition will we price at less than 10% above our delivery cost. Therefore, the lowest prices that can be quoted by the sales representative and office force are $7.26/unit and $6.49/unit, respectively. This new policy means the sales representative had better stop taking orders at
$7.00 per unit.”
When he read the memo, Lee was both pleased and

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