Flower Pharmaceuticals Essay examples

1067 WordsMar 16, 20125 Pages
Case Study: Flower Pharmaceuticals A. The table below lists each category and states whether the cost is relevant, if it is an implicit or explicit cost, and if the cost has been properly calculated (note: company is currently operating at 65% capacity). Cost category | Relevant | Implicit/Explicit | Calculated correctly? | Fully allocated capital cost1 | N | Explicit | Y | Direct labor cost2 | Y | Explicit | Y | Materials Purchased3 | Y | Explicit | Y | Materials Inventoried4 | Y | Implicit | N: 25,000 lbs x $9/per lb = $225,000 | Managerial overhead5 | N | Implicit | Y | Profit margin6 | N | Implicit | Y | 1. Fully allocated capital cost * Relevant— This cost is not relevant since it cannot be…show more content…
* Calculated correctly—No. The correct calculation would equal what the material can be sold for at the current market value: 25,000 lbs x $9/per lb = $225,000 5. Managerial overhead * Relevant—No. The firm is operating at 65% capacity, so the company would not have to turn away any other work. * Implicit—This cost is implicit since it is not money out of the company’s pocket, but it is not applicable since the cost is not relevant. * Calculated correctly—Yes, but the cost is not applicable since it is not relevant. 6. Profit margin * Relevant—No. The firm is operating at 65% capacity, so the company would not have to turn away any other work. * Implicit—This cost is implicit since it is not money out of the company’s pocket, but it is not applicable since the cost is not relevant. * Calculated correctly—Yes, but the cost is not applicable since it is not relevant. B. Calculate the relevant cost of the project for Flower. What is the lowest amount the firm should accept for the contact? Explain. Relevant Costs | | Direct labor cost | $1,860,000 | Materials Purchased | $500,000 | Materials Inventoried | $225,000 | Total Relevant Costs | $2,585,000.00 | The lowest amount the firm should accept for the contract is $2,585,000. This is the total of all of the relevant costs for the project. C. Explain how your answers in Parts A and B would
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