# Buy Cost And Decision­ Making Analysis

Buy Cost And Decision­ Making Analysis
Assignment 2: LASA 1—Cost and Decision­Making Analysis
Cheryl Montoya picked up the phone and called her boss, Wes Chan, Vice President of Marketing at Piedmont Fasteners
Corporation.
Cheryl: “Wes, I’m not sure how to go about answering the questions that came up at the meeting with the President
yesterday.”
Wes: “What’s the problem?”
Cheryl: “The president wanted to know the break­even point for each of the company’s products, but I am having trouble
figuring them out.”
Wes: “I’m sure you can handle it, Cheryl. And, by the way, I need your analysis on my desk tomorrow morning at 8:00 sharp
in time for the follow­up meeting at 9:00.”
Piedmont Fasteners Corporation makes three different clothing fasteners at its manufacturing facility in North Carolina. Data
concerning these products appear below:
Velcro
Metal
Nylon
100,000 units
200,000 units
400,000 units
Unit selling price
\$1.65
\$1.50
\$0.85
Variable cost per unit
\$1.25
\$0.70
\$0.25
Normal annual sales volume
Total fixed expenses are \$400,000 per year.
All three products are sold in highly competitive markets, so the company is unable to raise its prices without losing
unacceptably large numbers of customers.
The company has a very effective lean production system, so there is no beginning or ending work in process or finished­
goods inventories.
Using the module readings, the Argosy University online library resources, and the Internet, research break­even point and
costing systems. Analyze the case based on your research and what you have learned so far in the course.
Respond to the following:

Calculate the company’s overall break­even point in total sales dollars. Explain your methodology (approximately 2
pages).

Of the total fixed costs of \$400,000: \$20,000 could be avoided if the Velcro product were dropped, \$80,000 if the
Metal product were dropped, and \$60,000 if the Nylon product were dropped. The remaining fixed costs of
\$240,000 consist of common fixed costs such as administrative salaries and rent on the factory building that could
be avoided only by going out of business entirely (approximately 2 pages):
a.
b.
Calculate the break­even point in units for each product. Explain your methodology.
Determine the overall profit of the company if the company sells exactly the break­even quantity of each

Evaluate costing systems for this company. Explain if this company should be using a job order or process­costing
system to accumulate costs (1 page).
Be sure to include your calculations in Microsoft Excel format.
Write a 5–6­page report in Word format. Apply APA standards to citation of sources.

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