Jasmine Wang owns and operates a small chocolate factory, Rhapsody Chocolates, and sells the chocolates she makes
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Question:
Jasmine is not sure what price she should charge. Other chocolatiers, such as Dangerous Chocolates and Devonport Chocolates also are selling them, but without the RWC focus. Jasmine decides on a price of $21.00 for a box of six (6) rugby ball chocolates. She estimates that at this price she will sell, on average, 20,000 boxes of rugby balls per year.
Jasmine spends the rest of August conducting research into the best chocolate recipe and ingredients for the product along with designing the final product, sourcing the chocolate moulds, and deciding on a sustainable box design for each of the 20 participating countries. The research has cost her $1,000, while her design costs are $3,000. She will begin production in September just in time for kick-off and estimates that the product will have a life of four years (until the next RWC). The required profit for this type of product is a 30 per cent return on selling price (ROS).
The chocolate she is using is the finest quality Belgian chocolate (70% cocoa) that costs $17.00 for a 400-gram bag. Each rugby ball uses 10 grams of chocolate. Jasmine estimates that it will take 12 minutes to produce a batch of six (6) rugby balls (in a mould) and her labour rate is $24 per hour. The overhead to be charged to production is 54% of the labour cost. She will also incur a one-off production set-up cost of $5,000. The cost of the sustainable packaging is $1.50 per box of chocolates.
Further, Jasmine decides to ship the final product in cartons containing 24 boxes of chocolate rugby balls and each carton will cost, on average, $12 to distribute to her customers. Sales, marketing, and customer service expenditure for the box of chocolates is expected to be 0.5 per cent (0.5%) of the total sales revenue over its life. In addition, Jasmine plans to donate 10 cents ($0.10) per box of chocolates sold to her local rugby club to support the involvement of her community in social sporting activities.
After a recent event, her friend Sione, mentions a small business seminar he attended on an approach called "strategic cost management" (SCM). After talking about SCM concepts and techniques with Sione, Jasmine decides that she will try this cost management approach.
However, after discussing with her key customers their perceived value for the product and expectations regarding quality, Jasmine learns that the most they would be prepared to pay per box of chocolate rugby balls is $17.50. Jasmine is very surprised about the result of this discussion and comes to you, her accountant, for advice.
Required:
Describes the three (3) key elements of Strategic Cost Management AND explains how each of them could be applied to Rhapsody Chocolates to help Jasmine decide on the most appropriate cost management approach.
Presents a life-cycle budget for the boxes of chocolate rugby balls.
There is no need to calculate cost category percentages or separate the budget into years. Ignore the time value of money.
Calculates the lifecycle cost per box of chocolate rugby balls, the lifecycle profit per box of chocolate rugby balls AND the return on sales (ROS).
Explains target costing AND calculates the target cost per box of chocolate rugby balls.
Compares the target cost calculated in part (d) to the cost per unit calculated from your lifecycle budget in part (c) AND comments on the results.
Makes a recommendation, with reasons, as to what price Jasmine should charge for a box of chocolate rugby balls AND comments on the usefulness of using a strategic cost management approach at Rapsody Chocolates.
Related Book For
Systems analysis and design
ISBN: 978-0136089162
8th Edition
Authors: kenneth e. kendall, julie e. kendall
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