Account

ISSN 1940-204X

Product Costing at Fine Foods: Is It a Symptom or the Problem?

David Axelsson is the accountant and controller for an expanding wholesaler, board member for a family business, and member and vice-chairman of the board of directors for a local bank. Marcus Fogelkvist is the international research and development group controller for a large hard goods manufacturing multinational company. Gary M. Cunningham, Ph.D., is Professor Emeritus and Research Fellow at Gävle University in Gävle, Sweden.

INTRODUCTION

Kay Smith is the manager of Strategic Marketing Unit Two (SMU2) at Fine Foods, Inc., a provider of branded, highquality food products. Smith is unhappy with what she perceives to be unfair and inappropriate product costing for her unit, especially for what Fine Foods considers to be special orders. Smith’s education, experience, and expertise as a food scientist and process engineer have earned her considerable respect at Fine Foods, but she has limited accounting knowledge, which holds her back from expressing her serious concerns. Therefore, Smith asked you, a recent accounting graduate, to develop a draft memorandum, a slide presentation, and a glossary of terms to help her make her case more forcefully to management.

FINE FOODS, INC.

Fine Foods, Inc., rooted in the upper Midwest United States, produces a wide range of food products in a competitive industry. Almost all of its products are sold under the Fine ’n’ Fast brand name, which is widely recognized for its high quality and has a loyal customer following. Most products are packaged in sizes for end-consumption and are sold through supermarkets,

convenience shops, and similar outlets. Depending on the nature of the product and consumer preferences, products are sold frozen, refrigerated, canned, boxed, or packaged in other ways. Some items, such as individual packets of ketchup, mayonnaise, and mustard, are sold to fast food restaurants and similar outlets. The company also...