Blackheath Manufacturing Company

Abstract

Lee High, the newly hired cost accountant at Blackheath Manufacturing Company, computes the variable cost and the fixed cost per unit on a weekly volume of 500 units of the Great Heath. He uses this information to develop some pricing guidelines. His boss, Charlton Blackheath, endorses the guidelines and adds a feature: a higher commission on sales at a higher price. While both High and Blackheath are away, the file clerk, Adelaide Ladywell, accepts an order below the guidelines and is fired. Students are asked to develop an appropriate set of decision rules for pricing Great Heath and to evaluate Ladywell's decision. See also "Blackheath Manufacturing Company—Revisited" (UVA-C-2198).

Excerpt

UVA-C-2197

Rev. Jun. 19, 2009

BLACKHEATH MANUFACTURING COMPANY

Blackheath Manufacturing produced a single product called the Great Heath. 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 the sales representative, who said that they could be taken as average. Production costs were accumulated and accounted for fewer than seven different groups listed in Table 1:

Table 1. Production cost breakdown.

Units of

. . .

Keywords: variable and fixed costs, pricing guidelines