| Course | ACC-7000 Managerial Accounting for Decision Making |
|---|---|
| Module | Module 1 |
| Paper type | Module 1 written assignment: introduction to managerial accounting |
| Length | About 741 words, 5 pages |
| Format | APA 7 student paper |
| School | Thomas Edison State University |
| Program | MBA in Accounting |
| Updated | October 2026 |
Free sample paper for ACC 7000 Module 1
Below Full Cost but Worth Taking? A Special Order, CVP and Decision Rights at a Somerset Bakery
Student Name
MBA in Accounting, Thomas Edison State University
ACC-7000: Managerial Accounting for Decision Making
Mentor Name
Month Day, Year
Below Full Cost but Worth Taking? A Special Order, CVP and Decision Rights at a Somerset Bakery
Introduction
Zimmerman (2014) argues that managerial accounting systems have two roles: providing knowledge for decisions and helping control the behavior of people who make them. A number that is right for one purpose may mislead in the other. Full cost per unit, for example, is useful for long-run pricing and for holding managers responsible for capacity, but it misleads when spare capacity makes most fixed costs irrelevant to a short-run decision. The relevant measure is opportunity cost, the value of the best alternative given up.
The Bakery
The grocery chain wants 8,000 cases a month at $17, in its own packaging, which requires a $6,000 monthly changeover cost. No commission is paid on the order, so its variable cost is $12.50 a case.
| Monthly data | Amount |
|---|---|
| Capacity | 40,000 cases |
| Current volume | 30,000 cases |
| Price | $24.00 per case |
| Variable cost, including a $1.00 sales commission | $13.50 per case |
| Fixed manufacturing cost | $180,000 |
| Fixed selling and administrative cost | $60,000 |
| Full manufacturing cost per case, $13.50 plus $180,000 over 30,000 | $19.50 |
Part A: Evaluating the Special Order
Because the bakery has 10,000 cases of idle capacity, the order displaces no regular sales, and the opportunity cost of the capacity it uses is close to zero. Fixed manufacturing cost is the same whether or not the order is accepted, so allocating it to the order, as the $19.50 full cost does, makes a profitable order look like a loss. A manager who priced from full cost would turn away $30,000 a month.
Two qualitative risks remain. Regular customers who learn of the price may ask for discounts; if customers buying 3,000 cases a month won a $2 cut, the bakery would lose $6,000 a month, reducing but not eliminating the gain. And if regular demand grew past 32,000 cases, the order would begin displacing $10.50 of contribution margin per case, which is why the contract should run for one year with a review.
A make-or-buy check confirms the logic: if the bakery could buy private-label loaves from a co-packer at $14 and resell them, its gain would be only $3 a case, less than baking them itself with idle capacity.
| Effect per month | Amount |
|---|---|
| Revenue, 8,000 cases at $17 | $136,000 |
| Variable cost, 8,000 cases at $12.50 | (100,000) |
| Contribution margin | 36,000 |
| Packaging changeover | (6,000) |
| Increase in operating income | $30,000 |
Part B: Cost-Volume-Profit Analysis
At $10.50 of contribution margin per regular case, break-even is $240,000 divided by $10.50, about 22,857 cases. The margin of safety is 7,143 cases, or 23.8 percent of current volume. The order adds a second source of contribution that lowers the regular volume needed to break even to about 20,000 cases, since the order's $30,000 covers part of the fixed costs.
The cost structure explains why the order matters so much. With fixed costs of $240,000 and operating income of $75,000, the operating multiplier is $315,000 of contribution margin divided by $75,000, or 4.2, so a 10 percent change in regular volume changes operating income by about 42 percent. A steady private-label contract reduces that volatility, which is a benefit beyond the $30,000 a month.
| Measure | Before the order | With the order |
|---|---|---|
| Contribution margin | $315,000 | $351,000 |
| Fixed costs | (240,000) | (246,000) |
| Operating income | $75,000 | $105,000 |
Part C: Organizational Architecture
Zimmerman describes organizational architecture as three linked elements: how decision rights are assigned, how performance is measured and how people are rewarded. Jensen and Meckling (1976) explain why these matter: agents acting for owners pursue their own interests unless the system aligns them, and Holmstrom (1979) showed that rewards should rest on measures that carry information about the agent's actions.
At Raritan, sales representatives earn a commission on revenue, so they favor any order, however low its price, and the plant manager is evaluated on full cost per case, so she favors volume that spreads fixed cost. Neither measure tells either person whether an order adds value. The knowledge needed to price this order is split: sales knows the customer and market, the plant knows capacity and changeover cost. The decision right should therefore sit with the general manager, informed by both. Commissions should be based on contribution margin rather than revenue, and special orders should require a contribution analysis signed by sales and the plant. These changes link the right decision to the people with the knowledge to make it and the incentive to make it well.
References
Holmstrom, B. (1979). Moral hazard and observability. Bell Journal of Economics, 10(1), 74-91. https://doi.org/10.2307/3003320
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305-360. https://doi.org/10.1016/0304-405X(76)90026-X
Zimmerman, J. L. (2014). Accounting for decision making and control (8th ed.). McGraw-Hill.
Reading the ACC 7000 Module 1 assignment instructions
ACC-7000 runs four modules with six written assignments worth 30 percent together, seven discussions worth 30 percent, two live sessions worth 10 percent and a final project on a cost structure case worth 30 percent. Most assignment items come from the end of Zimmerman's chapters. The Module 1 assignment typically covers opportunity cost, relevant costs for special orders and make-or-buy decisions, cost-volume-profit analysis and the organizational architecture of decision rights, performance evaluation and rewards. The bakery is a composite written for this sample. Expect at least one problem where the obvious accounting answer and the economically correct answer differ, because that contrast is the point of Zimmerman's opening chapters.
How this ACC 7000 Module 1 example is built
The introduction states Zimmerman's two roles for accounting and why full cost can mislead. The bakery's data appear in one table. Part A computes the order's effect, explains why fixed cost is irrelevant with idle capacity and quantifies two risks, ending with a contract term. Part B computes break-even and margin of safety before and after the order. Part C turns to the bakery's commissions and plant evaluation, uses agency theory and places the decision with whoever holds the relevant knowledge. Every computation is shown beside its formula, and the qualitative risks are given dollar values where possible.
Reading the ACC 7000 Module 1 grading rubric
The special order set is one of six problem sets worth 5 points apiece. Mentors check correct relevant cost analysis, correct CVP computations and an explanation of why full cost misleads. Zimmerman's course also expects attention to control: who has the decision right, how performance is measured and whether incentives lead to the right choice. Answers that address both decision making and control, with computations shown, earn the most credit. Mentors look for the step from the numbers to the people: who holds the decision right, what measure they are judged on and whether that measure leads them to the choice the numbers support. Answers that stop at the computation lose most of that credit. Quantifying the qualitative risks, such as price concessions to regular customers, earns extra credit because it shows the decision's sensitivity. An operating multiplier computed before and after the order adds depth.
ACC 7000 Module 1 help from the desk
Special order answers lose points for allocating fixed costs to the order, ignoring capacity limits and stopping at the numbers. Identify which costs change with the decision. Check capacity and the opportunity cost of displaced sales. Then ask whether the people deciding have the information and incentive to decide well. Write down the capacity limit and the volume at which the order would start displacing regular sales, since that is where the answer changes. Then name the person holding that knowledge and check how that person is paid. A free first sample of your own ACC-7000 Module 1 problems is available on request.
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ACC 7000 Module 1 questions, answered
Where can I find a free ACC 7000 Module 1 sample paper?
The Somerset bakery special order is worked above: opportunity cost against full cost, CVP before and after the order and decision rights and incentives.
Why is full cost misleading for a special order?
With idle capacity, fixed costs do not change, so allocating them to the order understates its contribution to profit.
What is opportunity cost?
The value of the best alternative forgone when a resource is used for a particular purpose.
What is organizational architecture?
Zimmerman's term for the assignment of decision rights, performance evaluation and reward systems, which must fit together.
How is the margin of safety calculated?
Current sales minus break-even sales, often expressed as a percentage of current sales.