Blackheath Case Study
The Case

Blackheath Manufacturing Company, is a company that manufactures a single product named Ў§Great Heath.ЎЁ The company recently hired a new cost accountant, Lee High, who intends to conduct a new cost analysis over a period of three production weeks. Lee wanted to better identify the fixed, variable, and semi-variable costs associated with production of ЎҐGreat Heath.Ў¦ Once these costs were categorized Lee could determine how this would effect the cost of goods sold. Lee could then develop what the break- even volume that could be generated from a changing volume of sales. The case shows the assumptions that Lee High made with respect to variable as versus fixed costs in determining the cost of goods sold per unit . Lee High was able to develop decision rules for use by the companyЎ¦s owner for management decision-making purposes. Based upon Lee HighЎ¦s data, Charlton Blackheath, the owner, dictated a management decision that sales could not be less than a $7.00 per unit order. The case then introduces a series of sales possibilities that are accepted or declined based essentially on these decision rules. However, a young file clerk decided to take an under-bid proposal at $5.50 for an order of 100 units of ЎҐGreat HeathЎ¦ based upon her own assumption that such a volume order would be profitable. A subsequent sales-cost report was developed by Lee High showing cost per unit based upon his predetermined analysis of costs and including profit per unit. Data showed the file clerkЎ¦s order generated a subsequent loss because the price per unit was so low. Based upon this data, Blackheath then fired the clerk for this error and readjusted the per unit price to $8.00 to generate a higher profit.

Executive Summary

Lee High had made calculations based upon a static volume of sales and production. He was also