Wharf Fisheries Processes Many of Its Seafood Items to the Demands

question 29

Essay

Wharf Fisheries processes many of its seafood items to the demands of its largest customers, most of which are large retail distributors. To keep the accounting system simple, it has always assigned cost by the weight of the finished product. However, with increased competition, it has had to watch its prices closely and, in recent years, several items have incurred zero profit margins. After several weeks of investigation, your consulting firm has found that, while weight is important in processing of seafood, numerous items have very distinct processing steps and some items are processed through more steps than others.
Required:
Based on the findings of your consulting firm, what changes might you recommend to the company in the way of cost allocation among its products?

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Definitions:

Marginal Cost

The amount spent to produce an extra unit of a product or service.

Average Total Cost

The total cost divided by the quantity produced, representing the per-unit production cost.

Average Variable Cost

The total variable costs of production divided by the quantity of output produced.

MC Curve

Stands for Marginal Cost Curve, depicting the cost of producing one additional unit of a good.