Utilizing Management Accounting Approaches in Cookie Business
Instructions
Cookie Business Final Project
Now that your cookie business is well underway, you are going to use the knowledge that you have gained in this course to evaluate the financial information for the company. You will be creating a series of reports and analyzing the results using the templates provided to guide you through the project.
The learning objectives of this project are as follows:
Apply accounting concepts and standards to the creation of accounting information and reports.
Analyze accounting information used to make strategic business decisions.
Apply ethical behavior to accounting-related situations.
Make business decisions based on analyzing accounting data.
Using the Final Project Template , prepare a four- to five-page written report (including spreadsheets) with at least three scholarly sources. Your report will provide the following information:
Introduction
Part 1: Based on the data presented in the Spreadsheet Template in Excel (CM Breakeven tab):
Calculate the contribution margin (CM) for each of the three products sold at the cookie business.
Calculate the weighted average CM.
Calculate the break even point.
Complete your calculations by filling in the highlighted cells, and embed a copy of the completed spreadsheet into this report. Discuss the results based on your calculations as far as which type of cookie you think is the most profitable, which has the highest CM, etc.
Part 2: Based on the data presented in the Spreadsheet Template in Excel (Full Variable tab), complete the calculations listed below.
Calculate the value of ending inventory under full or absorption costing.
Calculate the value of ending inventory under variable costing.
Complete your calculations by filling in the highlighted cells, and embed a copy of the completed spreadsheet into this report. Discuss the results, and comment on which method you think is more helpful to managers and why.
Part 3: Based on the data presented in the Spreadsheet Template in Excel (Special Order tab), calculate the net increase or decrease in profit if they take the special order.
Complete your calculations by filling in the highlighted cells, and embed a copy of the completed spreadsheet into this report. Discuss the results and comment on if you think the cookie business should take on this special order of cookies for a wedding. Business has been slow the last few months, and the offer is less than the usual selling price for the cookies.
As part of your discussion, include both quantitative (based on the numbers) and qualitative (not based on numbers) factors that would go into the decision to take on the special order.
Part 4: Based on the data presented in the Spreadsheet Template in Excel (IRR tab), calculate the internal rate of return (IRR) for the new equipment purchase.
Complete your calculations by filling in the highlighted cells, and embed a copy of the completed spreadsheet into this report. Note: the PV Annuity table is provided for you. Discuss if you think the cookie business should accept or reject the purchase of the new equipment and why.
Additional information has come to your attention regarding the equipment purchase. One of the partner's brother owns the company that sells the equipment and insists the equipment is needed. Discuss any ethical concerns you see with this type of transaction.
Part 5: Based on the data presented in the Spreadsheet Template in Excel (Cash Budget tab), calculate the cash receipts for the first quarter of this year.
Complete your calculations by filling in the highlighted cells, and embed a copy of the completed spreadsheet into this report. Discuss your observations about the way cash is collected if the company needs $150,000 per month for expenses.
Part 6: Based on the data presented in the Spreadsheet Template in Excel (Variances tab), complete the following calculations.
Calculate the material variances.
Calculate the labor variances.
Complete your calculations by filling in the highlighted cells, and embed a copy of the completed spreadsheet into this report. Discuss your observations about the variances and ways to plan to improve any of the variances.
Conclusion and Recommendations
Summarize the key observations that you have made about the cookie business based on the calculations you have performed, and present any future recommendations. Be sure to use APA formatting throughout.
Cookie Business Final Project
Student Full Name
Institutional Affiliation
Course Full Name
Professor Full Name
Due Date
Abstract
Making the firm profitable requires the proper and practical application of management accounting concepts. It is also essential to understand that manufacturing businesses' production costs and other aspects are complex compared to different companies, such as retail. In this regard, enhancing productivity and values across the firm requires a proper focus on the actual costs within the firm. The management accounting representatives play a vital role in ensuring that effective decisions, especially on investment, are attained. Some of the considerations include whether to purchase new equipment and maximize the profitability of the firm. Additionally, it is the responsibility of the management accounting team to evaluate the weaknesses within the firm and the expenditure for each month and compare these aspects with the cash flow. Management accounting is vital in determining whether a company will succeed and is effective in offering information for decision-making to the company directors. The paper aims to demonstrate the application of accounting concepts and standards to creating accounting information and reports and evaluate how these concepts can be used to make strategic business decisions. It is also essential to apply ethical behavior to accounting-related situations and make business decisions based on accounting data analyzed.
Keywords: management, accounting, calculations, decision-making, production, profits, productivity.
Cookie Business Final Project
Introduction
Based on the calculations made from the spreadsheet, that paper aims to utilize management accounting approaches and how they are applied within the Cookie Business. The calculations will demonstrate the processes and the diverse aspects vital for the development of accounting reports for decision-making. The paper will determine and discuss the computation of contribution margin for the different products within the Cookie Business and how they influence profitability. After that, there will be a discussion of the cost methods used, including variable cost, absorption cost, and inventory value. There is a determination of net decreases in profitability when the company delivers a product with an offer or sale. The section also determines the present value and internal rate of return for the project, including investment evaluation decisions, highlighting the major ethical issues that can arise. Further, there is a determination of the monthly cash budgets and calculation alongside cash receipts, including the firm's cash receipts policy. Finally, there is a comprehensive discussion on the benefits and limitations based on labor and material costs. It is the role of the management to act fast and ensure that better decisions are made for warranting positive performance within the company.
Contribution Margin/Breakeven
The calculation quickly shows that the Specialty Cookie has the firm's highest contribution margin (recorded as 3.23). The Specialty Cookie is closely followed by the Chocolate Chip Cookie, which was recorded at 0.79, and the one with the least contribution margin is the Sugar Cookie. Based on the analysis, it can be established that the firm can enhance its profits by improving the production of the Specialty Cookie, followed by the Chocolate Cookie. On the other hand, the production of Sugar Cookies should be the least priority within the company because it has a lower profit margin. Also, the analysis has shown that the weighted average of the contribution margin was recorded at 1.02, with a break-even point of 122,783 units. Therefore, to get a no-profit or no-loss breakeven point, there is a need to sell 122,783 units. This will ensure that the company can recover the cost associated with the production, marketing, and other related expenses. The results are shown in Table 1.
Chocolate Chip
Sugar
Specialty
Per item Contribution Margin
0.79
0.69
3.23
Weighted Average Contribution Margin
1.02
Break-even point in units
122,783
Table 1: CM Breakeven
Full and Variable Costing
The results obtained in this section are shown in Table 2 below. When considering all the variable costs and fixed manufacturing, the absorption cost approach will be utilized for the calculation. Therefore, it is part of the production costs and is added to the produced units. Absorption costing is an essential method in accounting, and it is usually referred to as full costing. The technique effectively ensures that it captures all the approaches associated with manufacturing a specific product (Hojna & Stryckova, 2018). There are also direct and indirect costs, such as rentals, labor, materials, insurance, and others, that are accounted for within the method. Therefore, the absorption costing method is the most appropriate for effective decision-making in company management. This is because it considers variables costs (Maheshwari et al., 2021). In this regard, the technique effectively includes all the manufacturing costs and provides accurate and actual expenses.
Full (absorption) costing:
Full cost per unit
$2.05
Ending Inventory Full (absorption) costing
$369,000
Variable costing:
Variable cost per unit
$2.00
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