In this project, you will open your own specialty cookie company to see how product costing methods and changes in production affect business decisions. You will create a series of reports and analyze the results using the templates 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. For this component, you will prepare a four-to-five-page written report (including the spreadsheets, which should be incorporated into your paper), with at least three scholarly sources using the Unit II Project Template. You will create a report based on the premise that you want to establish a cookie business that sells only one type of specialty cookie with two employees. Your report will provide the following information: Introduction (Part 1) Create a name and establish a locale for the business. Construct a mission statement. Decide on the type of cookie you want to sell. Costing and Sales Information, Production of 1,000 cookies (Part 2) Estimate and explain the costs per cookie based on job order costing. Prepare a job order cost sheet by researching the pricing for these top five ingredients: butter, sugar, vanilla, flour, chips/add-ins. Manufacturing overhead is 30% of direct labor costs. It will take two employees working two days to make 1,000 cookies. For process costing, you will examine the costs per 1,000 cookies looking at these top three processes (departments): Mixing, Add-ins, and Packaging. The Mixing Department will be examined in depth. Materials will be added at the beginning of the process. The cookies will be in the Mixing Department for a total of eight hours; however, the cookies will only be 40% complete before they are transferred to the Add-ins Department. (Use this % for conversion costs.) Using the job-order costing system, determine the costs and sales price of your cookies. Differences between two-process cost systems (Part 3) Compare and contrast the cost methods examined in this project. Discuss using the information created, which costing method in this example, gives more complete costing information, and why. Discuss product costs and conversion costs and their importance in both costing systems. Variances in production – Costs and Revenues (Part 4) Examine the variances in both the job order costing and process costing (for the Mixing Department only) systems if the number of your cookies was to decrease to 500 cookies or increase to 1,500 cookies. Examine the effect on revenue these two variances in production would have. Conclusion (Part 5) Use the Unit II Cookie Project Spreadsheet Templates for your costing systems and embed them into your case study document. For your paper, be sure to use APA formatting throughout, and reach out to the Writing Center or the CSU Online Library for assistance with research, writing, and formatting. Include at least two of the three resources from the CSU Online Library in your report.
Report on Costing Methods for Coconut Crunch Biscuits Co.
Introduction (Part 1)
Business Name and Locale
Name: Coconut Crunch Biscuits Co.
Locale: Orlando, Florida
Mission Statement
At Coconut Crunch Biscuits Co., our mission is to craft the most delectable and unique specialty cookies using the finest ingredients, while maintaining a commitment to sustainability and community. We strive to delight our customers with every bite, providing a memorable treat that embodies both quality and innovation.
Type of Cookie
Our specialty cookie is the “Coconut Crunch Biscuit,” a unique blend of crunchy coconut flakes, rich chocolate chips, and a hint of vanilla.
Costing and Sales Information (Part 2)
Job Order Costing
Cost Breakdown for 1,000 Cookies
- Ingredients Cost:
- Butter: $3.00 per pound
- Sugar: $1.00 per pound
- Vanilla: $2.50 per ounce
- Flour: $0.50 per pound
- Chips/Add-ins: $4.00 per pound
- Butter: 2 pounds
- Sugar: 3 pounds
- Vanilla: 1 ounce
- Flour: 4 pounds
- Chips/Add-ins: 2 pounds
- Butter: $6.00
- Sugar: $3.00
- Vanilla: $2.50
- Flour: $2.00
- Chips/Add-ins: $8.00
- Total Ingredient Cost: $21.50
- Labor Costs:
- Direct Labor: 2 employees working for 2 days. Assume a wage of $15 per hour.
- Total Hours Worked: 2 employees x 8 hours/day x 2 days = 32 hours
- Direct Labor Cost: 32 hours x $15/hour = $480.00
- Manufacturing Overhead:
- Overhead Rate: 30% of Direct Labor Costs
- Overhead Cost: 30% x $480.00 = $144.00
- Ingredients Cost: $21.50
- Direct Labor Cost: $480.00
- Manufacturing Overhead: $144.00
- Total Cost: $645.50
- Total Cost for 1,000 Cookies / 1,000 = $0.645 per cookie
Process Costing
Production Stages:
- Mixing Department:
- Materials Added: Butter, sugar, vanilla, flour
- Completion Percentage: 40% before transfer
- Conversion Costs in Mixing Department:
- Direct Labor Cost allocated to Mixing Department (same $480 total)
- Conversion Costs are 40% of total direct labor
- Conversion Cost for Mixing Department: 40% x $480 = $192.00
- Butter, sugar, vanilla, flour cost distributed to Mixing Department:
- Materials Cost: $21.50 (entire batch)
- Materials Cost: $21.50
- Conversion Costs: $192.00
- Total Cost in Mixing Department: $213.50
- Total Cost: $213.50
Job Order vs. Process Costing
Comparison and Contrast (Part 3)
- Cost Methods:
- Job Order Costing: Focuses on specific job costs and is ideal for customized orders. Costs are tracked by job, which is beneficial for products with varied requirements.
- Process Costing: Suitable for standardized products like cookies where costs are accumulated by process. It averages costs over units and simplifies cost tracking for repetitive production.
- Product and Conversion Costs:
- Product Costs: Include direct materials, direct labor, and manufacturing overhead. Both methods account for product costs, but Job Order Costing provides a detailed breakdown per job, while Process Costing averages these costs across production batches.
- Conversion Costs: In Process Costing, conversion costs are tracked by department and are important for measuring efficiency and process performance. Job Order Costing directly ties conversion costs to specific jobs.
Variances in Production (Part 4)
- Decrease to 500 Cookies:
- Job Order Costing:
- Ingredients: $21.50 / 2 = $10.75
- Direct Labor: 16 hours x $15/hour = $240.00
- Overhead: 30% x $240.00 = $72.00
- Total Cost for 500 Cookies: $10.75 + $240.00 + $72.00 = $322.75
- Cost per Cookie: $322.75 / 500 = $0.645
- Process Costing (Mixing Department):
- Materials Cost: $21.50 / 2 = $10.75
- Conversion Cost: $192.00 / 2 = $96.00
- Total Cost: $10.75 + $96.00 = $106.75
- Cost per 500 Cookies: $106.75
- Job Order Costing:
- Increase to 1,500 Cookies:
- Job Order Costing:
- Ingredients: $21.50 x 1.5 = $32.25
- Direct Labor: 48 hours x $15/hour = $720.00
- Overhead: 30% x $720.00 = $216.00
- Total Cost for 1,500 Cookies: $32.25 + $720.00 + $216.00 = $968.25
- Cost per Cookie: $968.25 / 1,500 = $0.645
- Process Costing (Mixing Department):
- Materials Cost: $21.50 x 1.5 = $32.25
- Conversion Cost: $192.00 x 1.5 = $288.00
- Total Cost: $32.25 + $288.00 = $320.25
- Cost per 1,500 Cookies: $320.25
- Job Order Costing:
Effect on Revenue:
- For both costing systems, as production increases, per-unit costs decrease due to the spreading of fixed costs. Conversely, for reduced production, per-unit costs increase, impacting profitability.
Conclusion (Part 5)
The choice between Job Order Costing and Process Costing depends on the nature of production. Job Order Costing is more detailed for custom jobs, whereas Process Costing provides simplicity and efficiency for standardized production. Each method provides valuable insights into product costs, which are crucial for setting prices and managing profitability.
In summary, understanding and applying the right costing method ensures accurate pricing and effective financial management in a cookie production business. The detailed analysis from both costing methods highlights their respective strengths in different production scenarios.
Drury, C. (2018). Management and cost accounting (10th ed.). Cengage Learning.
APA Citation:
Drury, C. (2018). Management and cost accounting (10th ed.). Cengage Learning.
Horngren, C. T., Sundem, G. L., & Stratton, W. O. (2013). Introduction to management accounting (16th ed.). Pearson.
APA Citation:
Horngren, C. T., Sundem, G. L., & Stratton, W. O. (2013). Introduction to management accounting (16th ed.). Pearson.
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2019). Financial accounting (11th ed.). Wiley.
APA Citation:
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2019). Financial accounting (11th ed.). Wiley.
White, G. I., Sondhi, A. J., & Fried, D. (2003). The analysis and use of financial statements (3rd ed.). Wiley.
APA Citation:
White, G. I., Sondhi, A. J., & Fried, D. (2003). The analysis and use of financial statements (3rd ed.). Wiley.
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2022). Managerial accounting (8th ed.). Wiley.
APA Citation:
Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2022). Managerial accounting (8th ed.). Wiley.
