Essay about Blackheath Case Study

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The Case
Blackheath Manufacturing Company, is a company that manufactures a single product named ¡§Great Heath.¡¨ The company recently hired a new cost accountant, Lee High, who intends to conduct a new cost analysis over a period of three production weeks. Lee wanted to better identify the fixed, variable, and semi-variable costs associated with production of ¡¥Great Heath.¡¦ Once these costs were categorized Lee could determine how this would effect the cost of goods sold. Lee could then develop what the break- even volume that could be generated from a changing volume of sales. The case shows the assumptions that Lee High made with respect to variable as versus fixed costs in determining the cost of goods sold per unit . Lee High
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We noted that the original data provided did not properly account for Direct Labor. We can see this in the change of production unit between week 2 and week 3, which clearly shows that the direct labor change is $1.25 per unit (or a $125 difference between weeks.) Thus, the correct direct labor figure for week 1 should be $500*. From this raw data Lee High created income statements for these three weeks (p.35).

Sales
Cost of Goods Sold
Gross Margin
Less: Other Expns
Net Income Week 1
2800
1830
970
1061
(91) Week 2
3500
2110
1390
1131
259 Week 3
4200
2390
1810
1201
609

These income statements were how Lee High fashioned his decision rules to implement in the pricing of ¡¥Great Heath.¡¦ Unfortunately for Lee, he did not take into consideration all of the expenses when he figured his per unit cost. As best as we can determine, Lee utilized the ¡¥High-Low¡¦ method when he was calculating his costs. Lee took only the change of cost of goods sold between week 1 and week 3 into consideration when figuring his variable costs. He also relied upon his

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