Job Order and Process costing for a Cookie Business
Instructions:
Cookie Business
In this project, you will be opening your own specialty cookie company to see how product costing methods and changes in production affect business decisions. You will be creating a series of reports and analyzing the results using the template provided to guide you through the project.
The learning objectives of this project are as follows:
Gain an understanding of product costing (direct materials, direct labor, and overhead).
Review job order costing.
Review process costing.
Make business decisions based on analyzing accounting data.
You will prepare a four page written report (including spreadsheets) with at least two scholarly sources using the Unit II Project Template . Your report will provide the following information:
Introduction
Part 1: Establish a cookie business selling only one type of specialty cookie with two employees making the cookies.
Create a name and establish a location for the business.
Construct a mission statement for the business.
Decide on the type of cookie you want to make and sell.
Part 2: Develop costing and sales information for 1,000 cookies.
Estimate and explain the cost per cookie based on job order costing (manufacturing overhead is 30% of direct labor costs). Prepare a job order cost sheet by researching and identifying the top five ingredients and their estimated costs as your direct materials. Research and identify the cost of wages for your two employees as your direct labor. It typically takes two days to make 1,000 cookies.
Estimate and explain the cost per cookie based on process costing with 40% conversion costs. Identify the top three processes you feel are needed to make the cookies and prepare a production cost sheet for one of those processes.
Estimate and explain the sales price you plan to set per cookie based on the cost data.
Part 3: Compare and contrast the costing methods used in this project, including which you believe provides the most useful information as a manager.
Part 4: Discuss what will happen to revenue if the number of the cookies sold increases or decreases.
Conclusion and Recommendations
Use the Unit II Cookie Project Spreadsheet Templates for your job order, and process costing spreadsheets to be embedded in your case study document.
Be sure to use APA formatting and Include at least two resources
Jill Homely CookyZ
Student Name
Institution
ACC 5301 Management Applications of Accounting
Instructor
Date
Abstract
The current paper focuses on the job order costing and process costing methods to assess the operational, financial health of Jill-Homely CookyZ. Jill-Homely CookyZ is a bakery SME located in Mott Haven and specializes in baking and selling a cookie recipe borrowed from a Malawian Cookie called mbatata. A key aspect of the recipe is the reliance on sweet potatoes. The paper looks at the two costing methods and their implications to the organization when sales increase or decrease. The current paper utilizes job order costing and process costing methods to analyze and determine the cost of a unit cookie and the implications incurred when sales change. A key outcome of the costing process is the total cost of production of a single unit of cookie and the determination of the price customers will pay. The price is, therefore, shaped by the costing outcomes besides expected profit margins on each cookie.
Jill-Homely CookyZ
Introduction
Astute business management requires a detailed understanding of the specific elements that go into the production process. The cost of each element has an impact on the overall cost of the final product. In baking cookies, for instance, the cost of each ingredient impacts the cost of a unit cookie. Further, each stage of the production cycle requires a different amount of labor which also shapes the cost of a unit cookie. Thus, the current paper explores how the two costing methods shape the price of a cookie unit.
The Cookie Business
On a chilly morning in January 2017, Jill, a 12-year old daughter to a single mother, set up cookies stand on an isolated street in Mott Haven. Her mission was to raise funds to assist her family with her , mother's medical and burial costs. Her mother, Homely, had passed on early in January from breast cancer. Jill-Homely CookyZ, as she later called them, was a family recipe that Jill picked from her late grandmother. The recipe is borrowed from mbatata; a Malawian Sweet Potatoes Cookie. Today, Jill-Homely CookyZ (JHC) is an established small business in Mott Haven specializing in the Jill-Homely family recipe. JHC's mission is to inspire empathy in an apathetic society through cookies.
Costing and Sales Information
Job order costing is a costing method used to estimate the cost of manufacturing or producing a product. It consists of direct materials, direct labor, and manufacturing overhead. In the current analysis, the provided estimates produce 1,000 cookies. In terms of direct material (see Appendix 1), the key ingredients include sweet potatoes ($6), unbleached all-purpose flour ($1.6), mild-flavored butter ($0.96), raisins ($3.50), and cinnamon ($3.00). These prices are adjusted based on the quantity of each ingredient required in the production of 1,000 cookies. Therefore, the cost of direct material in the production of 1,000 cookies is $194.46. In terms of labor, JHC has two employees working for six hours a day at a rate of $11.50 per hour (Salary, 2021). It takes two days to produce 1,000 cookies, implying, 24 hours of labor cost $138.00. The manufacturing overhead is 30% of the total direct labor costs ($41.40). Therefore, it costs JHC $194.46 to produce 1,000 cookies, which translates to $0.19 per unit cost.
A critical process in the production of cookies is kneading. It is labor-intensive, and its outcomes shape the quality of the final product. The kneading process involves mixing ingredients and the development of dough that is altered transformed into cookies. Based on the current recipe, as part of the kneading process, is peeling and preparing sweet potatoes. It also involves the production of dough shapes that form JHC's famous cookies. Other essential process includes baking cookies and packaging. Baking involves the use of ovens where it takes 15 minutes for each batch of 100 cookies. Packaging involves the placement of cookies in packages based on customized customer requirements or the general market strategies. Of the three processes, kneading is the most labor-intensive and time-consuming. Since there is the production of only one flavor of cookies, process costing is an ideal method of understanding the cost of the production process. With a conversation rate of 40% and job order costs of $0.19 per cookie, the cost of kneading one cookie is $0.08.
This figure is vital because it provides a basis on which the cost of each cookie can be estimated. This is defined as the amount of money customers will spend on cookies. JHC sells its cookies in ¼, ½, dozen, and premium family packs. A package is holding one cookie costs JHC $0.01 (Uguru, Nnachi, & Nkwagu, 2015). Thus, the total cost of production and packaging each cookie is $0.27. Another factor to consider when estimating the cost of a product is the transportation costs of both ingredients and finished products (Chwastyk & Kołosowski, 2014). Other key factors include competition, profit, and taxes. However, the current estimate only focuses on cookie cost based on the job order costing and process costing outcomes with profitability in mind. JHC expects to make an 80% profit on each cookie to meet its objectives. Thus, the profit on each cookie is $0.22. therefore, the price of each cookie is the sum of estimated profit and the cost of production, including the process cost. Thus, JHC sells at $0.50 per cookie. However, the figure can be adjusted to meet other costs, including energy and water consumption.
Compare and Contrast Costing Methods
In the previous section, two costing methods have been utilized to provide an over...