Professional Documents
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F. Record the amount of cleanup and supervisory time involved. Quantify the cost of these
tasks (Indirect Labor).
a. Indirect Labor: Maintenance employee: Rate $11 per hour; 1 hour of cleanup
Kitchen Supervisor: Rate $15 per hour; 1 hour of cooking time. 11+15= $26 indirect labor.
G. Estimate the time spent on the accounting/recording tasks and quantify these costs
(Administrative Time).
a. Accounting: Rate $20 per hour; 30 minutes of accounting ($20 x .5=$10)
H. Put dollar costs of all materials used (from “E”), for labor (from D, F & G) and for
facility rent (from BII) on the grid here, as was done in Problem 2-15. Reference each
cost on the grid to A-G above. (for example: Direct Labor is from "D" above).[6 points]
Note: Please keep grid all on the same page for ease of review. See following example.
Cost Item
Variable Fixed Selling Admin. (Product Cost) Reference
Cost Cost Direct Indirect
Dir. Labor 25 25 D.
Indirect Labor 26 26 F.
Accounting 10 10 G.
I. Total all product costs on the grid (both direct and indirect - last 2 columns only). From
your total product cost, what was the per unit product cost of making this product? (If
you made one batch of the product, how many were in the batch? Divide total cost by the
number in the batch to get the cost per product?) Show all calculations. [3 points]
When only account for product costs the total is $63.6 and this produces 60 cookies. So it costs
us $1.06 to make one cookie within the 2.5 hour time period.
J. Comment on what lessons were learned in this process of the prototype. Address each of
the following areas: [12 points]
a. Assuming you had enough raw materials to do so, would there be time savings
achieved by making more than one batch at a time? How so? If so, quantify the
time and dollar savings you would estimate for both direct and indirect labor.
With the facilities that we have looked at for our business we would be able to produce an extra
10 batches easily within the same amount of time. That would be an extra 600 cookies. While
producing only 60 cookies direct labor costs are 25 divided by 60 which equals $0.4167 per
cookie and the indirect labor costs for producing 60 cookies is 26 divided by 60 which equals
$0.4334 per cookie. With an increase in production from 60 cookies per 2.5 hours to 660 cookies
per 2.5 hours we would see a dramatic decrease in direct and indirect labor costs per cookie. For
660 cookies labor direct labor costs would 25 divided by 660 which equals $0.038 per cookie.
For indirect labor costs that would be 26 divided by 660 and that equals $0.039 per cookie.
b. Given the day’s rent that had to be paid whether you made one batch or many
batches, what would you like to be able to do to reduce your unit product cost?
Make an investment in better equipment as to produce cookies faster. Though this would be in an
upfront cost and may put us in a poor economic state for a little, it would definitely benefit us in
the long run. Also revisiting the recipe and seeing what ingredients we should prioritize keeping
high quality and what ingredients we shouldn't so that we spend less on what isn’t as important.
c. Redo the grid for the new # of batches made and recalculate the unit product cost
assuming you could achieve the economies of scale discussed above.
Cost Item
Variable Fixed Selling Admin. (Product Cost) Reference
Cost Cost Direct Indirect
Dir. Labor 25 25 D.
Indirect Labor 26 26 F.
Facility Rent (month) 395 395 B.
Accounting 10 10 G.
d. Are there other things you would do differently if you decided to bring this
product to market?
We would find an advantageous location to sells these where we would have little competition
directly surrounding us. If we were actually bringing this product to market with a store front and
everything than we would prefer to have a blank kitchen where we buy all the appliances which
would be in the back of our storefront. This would be a lot more costly in the beginning but
definitely has its merits in the long term, plus it is specifically built to our needs.
Accounting 12 Project
Team: Baked My Heart
Josephine Hulburd
Rachel Liu
Nick Zakaluk
PHASE II
A. If direct laborers work at capacity, how many products get made each day? Each month?
(Start with the information from Phase 1 (J)(iii) on how long it took to make "x" number
of batches, then extrapolate to get # of batches in an 8 hour day. Make and show any
adjustments to reflect more or less workers added to your direct labor crew.) Multiply the
result in batches by the # of products per batch for # of products per day. Multiply that
by 22 days to get # of products produced each month.
a. If it takes us 2.5 hours to make 660 cookies, with 8 hours we can make 1,980
cookies a day ( 8/2.5=3.2; 3*660=1,980) (because 2.5 is uneven there will be 7.5
of actual baking time)
b. That would be 43,560 cookies a month (22days*1,980=43,560)
B. How much will you spend on direct materials to produce to capacity each month? (make
calculation based on info in Phase1(J)(iii).)
a. $9147.60 in direct materials($138.6*3*22=$9147.6)
C. List and quantify your direct labor cost per month with production at capacity.
a. With two bakers working at $10 an hour for 7.5 hours, direct labor will be $3,300
a month ($10*8hrs*2 employees*22 days=$3300)
D. List & quantify your manufacturing overhead costs per month (last column)
a. $1600 Rent + $400 Utilities + $600 Janitorial services = $2,600 per month
E. What method of overhead allocation will your company use (recall your making only one
product)?
a. We are going to use the absorption costing method of overhead allocation.
Because we are only producing and selling one product it is easier to use the total
cost method to understand when we have made back a majority of our money and
have started turning a profit.
F. List and quantify your period costs per month.
a. Salesperson wage: $10*8hrs*22 days= $1760
b. Accountant wage: $10*2hrs*22 days= 440
G. Insert the information obtained from A-F above into the grid below. Reference cost in the
grid to the task A-F where it was calculated:
Phase 2 Monthly Costs Ref
Product Costs
Other:
H. Assume you are operating at capacity within the relevant range. What are the company’s
total monthly fixed costs? Total monthly variable costs?
a. Total monthly fixed costs= $3300+$600+$2000+$500+$1760+$440= $8600
b. Total monthly variable costs= $9147.6
I. Using the formula of:
a. Sales - Variable costs = contribution margin - fixed costs = Net Income
i. ($43560*$1 per cookie)- $9147.6= $34412.4
ii. $34412.4- $8600= $25812.4 Net Income
b. And your knowledge of what fixed costs are from G above, what dollar level of
monthly sales must your company have to break-even?
i. =9147.6+8600= $17,747.60 to break-even
J. Based on the number of products made each month when at capacity (“A” above), what
is the minimum you charge for each product in order to break-even? Briefly explain
whether this price is reasonable based on known competition. What conclusions do you
draw from this analysis? (Can you charge more than the minimum price in order to make
more money?)
a. $17747.60/43,560 cookies≈$0.41 per cookie to break even. After doing a little
research a small cookie (similar to the size of ours) retails for about $1.25 a
cookie. With this in mind, looking at our break even price, we can conclude that
selling at break even is not a smart decision because we can make a lot more
money if we sell at around market price.
K. Determine the sales price per product that you intend to charge. Assuming you can sell all
you make, what will be your net income for the month, based on this selling price per
product?
a. If we sell our cookies at $1 a cookie then we will have a revenue of $43,560
($1*43650 = $43560). To break even for the month we have to make $17,747.6.
Thus our profit for the month would be $25,812.40 ($43,560-$17,747.6=
$25,812.40)
L. Based on J and K above, compute your margin of safety.
a. Our margin of safety would be $25,812.40
i. 43,560 - 17,747.60 = 25,812.40
b. Or 59.26%
i. 25,812.40/43,560 = 0.75 * 100 = 52.26%
M. Based on K above, compute your degree of operating leverage.
a. Our degree of operating leverage is 1.33.
i. 34,412.40 / 25,812.40 = 1.33
Accounting 12 Project
Team: Baked My Heart
Josephine Hullburd
Rachel Liu
Nick Zakaluk
Phase III
A. The first page of this Phase should be the summary grid in "G" and the income
statement in "K" from Phase 2 of the project. Also prepare a contribution format
income statement for the month that reconciles to the GAAP format. [3 points]
To get your company started on January 1, each group member pays $5,000 cash
each for stock in your corporation. Record the effect of this cash receipt in your
cash budget under “Financing”. (Note: If you intend to automate parts of your
production process by buying equipment with some of this money, and laying off
workers, this is a good place to articulate what you are going to buy, its estimated
useful life, and how that will affect your direct labor situation. Show all
calculations and a revised grid using the Phase 2 grid format.)
a.
Phase 2 Monthly Costs Ref
Product Costs
Other:
Totals 9147.6 8600 2260 440 12447.6 2600
b. Contribution Format:
Revenue $43,560 (From Phase II)
-VC $9,147.60 (From Grid)
CM $34,412.60
-FC $8,600 (From Grid)
NOI $25,812.40
c. GAAP Format
Revenue $43,560 (From Phase II)
-CGS $15,047.6 ($12,447.6+ $2600)
GM $28,512.40
-Op. Exps $2,700 ($2,260+ $440)
NOI $25,812.40
B. (i) Your company pays incorporation, business license and attorney fees of $3,000
on January 2. Consider this an administrative expense. (ii) Prepare a GAAP-based
income statement for the quarter [3 points]
a. GAAP Format- Quarter
Revenue $130,680 ($43,560*3)
-CGS $45,142.80 ($15,047.6*3)
GM $85,537.20
-Op. Exps $11,100 ($2,700*3 + $3,000)
NOI $74,437.2
C. The landlord wants a first and last month rent deposit before you may commence
operations in the facility ($4,000). The check is sent Jan. 2nd. For subsequent
months, the rent is due on the first of each month.{Hint here: you'll need a
non-current asset account called Security deposit to hold the last month's rent
amount}
a. Security Deposit… $4,000
Cash… $4,000
b. Rent Expense… $2,000
Cash… $2,000
c. Make a schedule of cash collections for each month and for the quarter
ended 3/31. [2 points]
i. Assume all sales collected month in of the sales
ii. Budgeted Collections:
Jan Feb Mar Total
(*9147.60x3=27,441.80)
(ii) Articulate when and how you pay your vendors. Develop a schedule of cash
disbursements for raw materials inventory purchases for each month and for the quarter.
[2 points]
ii. Raw materials purchases are paid for in the month of purchase in cash at the beginning
of the month.
(*10,062.36+9147.60+9147.60=28,356.56)
(iii) Develop a schedule of cash disbursements for your payroll for each month and for
the quarter (paying direct, indirect laborers, salesperson, accountant. If the accountant
and janitor are outsourced, do not include them here. Hint: You WILL have a liability at
3/31 for Accrued Payroll [wages incurred but not paid until 4/1]) [3 points]
Our janitor is outsourced and there are no other indirect laborers (no supervisor) on the
payroll but our accountant is not.
Everyone is paid at the beginning of the next month.
iii. Budgeted payments for wage earners:
OyJan Feb Mar. Quarter
Direct Labor Payments 0 3300 3300 6600
Accountant 0 440 440 880
Salesperson 0 1760 1760 3520
Cash paid for payroll 0 5500 5500 11000
(iv) Develop a schedule of cash disbursements for rent, utilities and any other
non-payroll overhead for each month and for the quarter in total. [3 points]
Jan Feb Mar. Quarter
Janitor service 600 600 600 1,800
Rent 1,600 1,600 1,600 4,800
Utilities 400 400 400 1,200
Total 2,600 2,600 2,600 7,800
F. Proceed with the schedule of other cash disbursements made for your non-payroll
selling and administrative expenses, your start-up costs from above, and your Security
Deposit. [3 points]
Jan Feb Mar. Quarter
Start-up costs 3000 - - 3000
Security Deposit 4000 - - 4000
Rent 400 400 400 1200
Utilities 100 100 100 300
Cash paid 7500 500 500 8500
G. Prepare a cash budget for each month and for the quarter ended 3/31/xx.
Make sure you include all cash received and all cash disbursed from A-G above.
Reference inside the budget which schedule the amount comes from. [4 points]
Cash Disbursements:
Financing:
*We pay a month’s worth of wages at the beginning of the next month
.
H. Prepare a budgeted multi-step income statement and classified balance sheet for the
quarter ended 3/31/xx. Make sure you show your Retained Earnings reconciliation. [12
points]
Multi-step Income Statement:
Sales 130,680
-COGs 45,142.80
-G&A 4,320
Net Operating Income 74,437.20
Schedule of RE:
Beginning Balance 0
Cash 90,022.44
Liabilities
Current Liabilities:
Stockholders’ Equity
Common Stock 15,000