Blackheath Manufacturing Essay

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BLACKHEATH MANUFACTURING COMPANY CASE SUMMARY This book includes a sequenced pair of Blackheath cases. In this, the first case, Lee High, the newly hired cost accountant, computes the variable cost and the fixed cost per unit at a volume of 500 units of Great Heath per week. He uses this information to develop some guidelines for pricing. His boss, Charlton Blackheath, endorses the guidelines and adds a feature: a higher commission on sales at a higher price. When both High and Blackheath are away, the file clerk, Adelaide Ladywell, accepts an order below the guidelines and is fired. Develop an appropriate set of decision rules for pricing Great Heath, and to evaluate the decision made by Adelaide. OBJECTIVES: This case relates to these subjects: 1. The breakdown of costs into fixed and variable categories; 2. The development and usefulness of contribution margin; and 3. Pricing strategies. ASSIGNMENT: 1. Develop an appropriate set of decision rules for pricing the Great Heath. 2. Evaluate the decision made by Adelaide Ladywell. ANALYSIS: 1. Develop an appropriate set of decision rules for pricing the Great Heath. Table TN1 provides detail on how Lee High put together his !Useful Data on Great Heath" in the case. In the long run, Blackheath must price Great Heath at a level sufficient to cover all its costs. Accordingly, decision rules #1 and #2 presented in the case seem reasonable at first glance for Blackheath‘s typical business. However, note that these decision rules do depend on expected volume (the rules presented in the case assume an average volume of 500 units per week), so they would change with any change in expected volume. In addition, these decision rules assume that there is sufficient capacity to handle all business won. If Blackheath encounters capacity constraints, it would have to revisit its decision rules to direct the

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