Teaching notes Lipman Bottle Companv*
This case, unchanged tram the Ninth Edition, was prepared by Michael J. Sandretto. Copyright @ 1982 by the President and Fellows ofHarvard College. Harvard Business School Teaching Note 5-182-20 I.
Lipman Bottle Company is designed to illustrate cost accounting in a firm with a simple manufacturing process and with a relatively small product line. The cost accounting information, together with an industry leader's price list, can be used to revise the price list of the firm. The primary objectives of the case are to: 1. Illustrate a cost system where work in process and finished good inventories are insignificant and where there are no inventories of intermediate subassemblies. These factors greatly simplify the task of calculating product cost . 2. Show how information on a financial statement can be used to estimate product cost for 3. individual items. This can be contrasted with the difficulty in estimating product cost where in- process inventories are significant and where a cost system does not exist. 4. Discuss how cost numbers can be used as an aid in pricing decisions. This can easily be extended to a discussion of whether full or variable costs should be used in pricing decisions.
This case can be used in an 80-minute class for first-year MBA students or as an introductory case in a second-year MBA course. Tutti i diritti may be required in a second-year class. Additional material riservati This note is divided into two sections: teaching strategy (A) and answers to the questions (B).
A. Teaching Strategy
1. Case per Bottle I begin by asking for the variable cost of a 0-1 oz. round bottle, order size 5000-9999, one separation, for sale in Albany. (See answer to question 1, part B of this note.) The calculation is relatively straightforward, except that to calculate set-up rime per bottle, it is necessary to estimate an average size order.
2. Break-Even Volume I then ask what the firm needs to charge to break even, given their present volume. The simple answer, without analyzing whether costs have been properly classified as variable or feed, is: Based on machine hours
Sistemi di controllo - Analisi economiche per le decisioni aziendali 2/ed Robert N. Anthony, David F. Hawkins, Diego M. Macrì, Kenneth A. Merchant Copyright © 2004 – The McGraw-Hill Companies srl
Variable cost + $106.944/16.000 = v.c. + $6,68/machine hr.
OR Based on passes: Variable cost + $106.944/15.500 = v.c. + $6,90/machine hr.
3. Classification of Costs One of the first two points usually leads to a discussion of how costs are classified in Exhibit 1. The classification is essentially the same as that used by the consultant, except that the allocation of depreciation between variable and fixed costs has been reversed. A small amount of depreciation was considered variable simply because there is some wearing away of the asset. Students can easily spend 10-15 minutes discussing whether depreciation is a variable or a fixed cost. Among the more reasonable positions are that depreciation is a fixed expense if machines tend to be replaced because of technological obsolescence or if machines tend to last for a very long time. Where machines tend to wear out because of usage, such as an automobile, then there is a usage of the asset which is probably a variable cost Clearly, depreciation is not a very accurate measure of that wearing away. Nevertheless, it may be reasonable to include some element of that cost as variable.
Students may also raise the point that labor costs are not really variable in the short run. This is a
reasonable position and was the one taken by the firm During slack periods, workers were assigned cleaning type tasks. However, the f1rtn did rely on...