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Essay / Research Paper Abstract
A 5 page paper that explores how the owners of this small brewery can determine which label costs less to produce, thus which to use as their signature label. Their accountant recommended one specific costing process to use; this writer suggests one that should yield more reliable information. Bibliography lists 2 sources.
Page Count:
5 pages (~225 words per page)
File: D0_Sdmicro.doc
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Unformatted sample text from the term paper:
has provided a comfortable income for the owners. The brewery now produces six different labels of specialty beer. Sandy and Dave, co-owners, are now ready to select a signature label
for the brewery which they anticipate will increase their earnings. Tom, the accountant for South Dakota Microbrewery, has advised the owners that their practice of using a plant-wide method
of allocating indirect costs may not be the best method for them to use and suggested using "product-cost cross-subsidization" to obtain a clearer idea of how much it actually costs
their microbrewery to produce a bottle of beer in each of their labels. Cost cross-subsidization is a method used often in the utility companies. Martin explained that this process is
typically used in telephone services and basically involves charging businesses more for telephone services than what is charged for residential service. The philosophy is along the lines of a "take
from the rich and give to the poor" mentality. Martin pointed out that gas and electricity providers do not set different rates for the use of the commodities and they
still make a profit (1998). Using the process Tom recommended, which involves one factor subsidizing another factor, would basically mean that Dave and Sandy would subsidize the beer that uses
more resources with the beer that uses less. This may seem like a simplistic explanation but it is basically what Tom has suggested. If Dave and Sandy used this kind
of a costing analysis, they would still be left with an unclear idea of what each label actually cost to produce. There is another method of cost analysis that may
serve these two entrepreneurs better; it is called activity-based cost costing (ABC). This process can be used to identify the cost of any product or activity in which the business
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