ACC 5301 Coloumbia Southern University Sugar Rush Cookie Company Presentation

Description

Cookie Business Final Presentation  (Sugar Rush Cookie Company)
Now that you have completed running some calculations for the cookie business in Unit VII, you will present your findings.
The learning objectives of this project allow you to apply accounting concepts and standards to the creation of accounting information and reports.
Using your final project from Unit VII as a guide, create an eight- to ten-slide PowerPoint presentation. In this presentation, you want to summarize what you found and discuss how you think these findings will help you make better business decisions. In addition, provide future recommendations for the cookie business based on your report findings.

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Sugar Rush Cookie Business Final Project
Dennis Woodard
Columbia Southern University
Management Applications of Accounting
Dr. Ole
May 17, 2022
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Abstract
The contribution margin is the difference between the net sales revenue of a business and its
variable costs. The amount of money remains after the variable costs, like labor, commissions,
and raw materials, are subtracted. Full costing, also known as absorption costing, is a cost
accounting method that accounts for all costs directly related to production. It includes both fixed
and variable costs. The unique cookie is a good point for the business as it can bring in a profit of
400 dollars for 1000 cookies despite the high discount price. Interest Rate of Return (IRR) is a
measurement used in accounts to gauge the profitability of potential investments for businesses.
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Sugar Rush Cookie Business Final Project
Sugar Rush Cookie is a company whose mission is to use premium and quality products
in each freshly baked cookie to produce the best healthy ones. It is located in Dallas, Texas. It is
a business that seeks profits and charitable deeds and contributes to the availability of social
amenities in society. This report will discuss contribution margin, weighted average contribution
margin, break-even points, ending inventory costing, profits, losses, an interest rate of return,
cash budgeting, and variances in Accounting.
Part 1 Contribution Margin/Breakeven
The contribution margin is the difference between the net sales revenue and its variable
costs (Corporate Finance Institute, 2021). The amount of money remains after the variable costs,
like labor, commissions, and raw materials, are subtracted. This remaining amount should be
able to cater to the fixed costs and profits for the business. The fixed costs are rent, insurance
cover, and interest paid to the bank in case of a loan. The total revenue is 3,807,000 dollars in the
cookie business, and the total variable costs are 976,800 dollars. To calculate the contribution
margin, the formulae below are used.
= −
= $3,807,000 − $ 976,800
= $2,830,200
The per item contribution margin will be the Contribution Margin divided by the number
it items sold.
= ÷ .
= $1,185,000 ÷ 1,500,000
= 0.79
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= 676,200 ÷ 980,000 = 0.69
= 969,000 ÷ 300,000 = 3.23
Weighted Average Contribution Margin (WACM) is the amount of money that a group
of products contributes to cater to the fixed costs of a business (Kumar&Reinartz, 2016). There
are three products in the cookie business: chocolate chip cookies, sugar, and specialty. The
WACM calculates the total by adding the unit sales of each product, then multiplying each
product by the number of sales and adding the totals. Afterward, the total independent
contribution margins are divided by the total number of unit sales.
The break-even point shows the business owners the number of sales they need to make
to cover fixed and variable costs and retain profit to run the business. It is the point where the
total sales are equal to total costs (Corporate Finance Institute, 2021). To calculate this breakeven point, the business has to figure out the variable costs, fixed costs, quantity of output, and
price of each item.
= ÷
In the Sugar Rush Cookie Company, the break-even point is zero. This break-even point
means that the amount of products that need to be sold to meet is zero. Therefore, the company
has fully covered the costs and made a profit of 2,705,200 dollars. The cookie with the highest
contribution margin is the chocolate chip. Based on this information, the chocolate chip cookie is
the most profitable type of cookie.
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Table 1:
Cookie Business
Units Sold
Sales
Less: Variable Costs
Contribution Margin
Less: Common Fixed Costs
Profit
Per item Contribution Margin
Weighted Average
Contribution Margin
Break-even point in units
Chocolate Chip
Sugar
Specialty
1,500,000
980,000
300,000
$ 1,875,000.00 $ 882,000.00 $ 1,050,000.00 $
$ 690,000.00 $ 205,800.00 $
81,000.00 $
$ 1,185,000.00 $ 676,200.00 $ 969,000.00 $
$
$
0.79
0.69
Total
2,780,000
3,807,000.00
976,800.00
2,830,200.00
125,000.00
2,705,200.00
3.23
1.018
0
Part 2 Full and Variable Costing
Full costing, also known as absorption costing, is a cost accounting method that accounts
for all costs directly related to the production (Batubara,2013). It includes both fixed and variable
costs. These costs are raw materials, time-rated labor, mortgage, and salaries. On the other hand,
variable costing includes only the variable costs directly connected to production
(Batubara,2013). These are costs that change from time to time. Examples are insurance,
mortgage rates, and deterioration of production of machines.
Both the fixed manufacturing overhead per year per unit value and total variable
manufacturing costs were added per unit to calculate the BEP. For the variable cost per unit, only
the total variable manufacturing costs were considered (Hill, 2020). The ending inventory full
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costing was calculated by multiplying the full cost per unit and the number of cookies produced
and not sold. The calculation is similar for the ending inventory variable costing, only that
variable cost per unit was in place of full cost per unit.
Full costing is better for the business since it includes all the costs incurred and is more
accurate when it comes to visualizing the profitability of the company or business
Table 2:
Cookie Business
Productions Costs:
Direct material
Direct labor
Variable manufacturing overhead
Total variable manufacturing costs per unit
$
$
$
$
0.60
1.00
0.40
2.00
Fixed manufacturing overhead per year
$ 139,000.00
Fixed manufacturing overhead per year per unit $
0.05
In addition, the company has fixed selling and administrative costs:
Fixed selling costs per year
$ 50,000.00
Fixed administrative costs per year
$ 65,000.00
Fixed selling costs per year per unit
$
0.02
Fixed administrative costs per year per unit
$
0.02
Selling price per cookie
$
3.75
Number of cookies produced
Number of cookies sold
2,780,000
2,600,000
Full (absorption) costing :
Full cost per unit
Ending Inventory Full (absorption) costing
$
$
2.05
369,000
Variable costing :
Variable cost per unit
Ending Inventory Variable costing
$
$
2.00
360,000
Part 3 Special Order
The unique cookie is a good point for the business as it can bring in a profit of 400
dollars for 1000 cookies despite the high discount price. The business can consider taking an
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order from the wedding but increasing the price or size of the order to make a bigger profit. The
wedding order would also be a good marketing point for the business. This would be effective as
long as the quality of the cookies is desirable. This quality includes presentation, taste, and
nutrition value.
Table 3:
Cookie Business
Number of cookies needed
Discounted price per cookie
Normal price per cookie
Cost of special printed design per cookie
Cost of tool needed to make the design
Revenue for special order
Costs for special order:
Design cost
Tool cost
Net increase (decrease) in profit
$
$
$
$
1,000
2.75
3.75
0.50
100.00
$
1,000
$
$
$
500
100
400
Part 4 Internal Rate of Return
Interest Rate of Return (IRR) is a measurement used in accounts to gauge the profitability
of potential investments for businesses. In the Cookie Company, we accept the IRR of 8%. This
acceptance is because the business is still young and will be able to recover the money invested
within seven years plus a profit of 8%. The profit does not seem enough, but after seven years,
the profits will significantly increase since they will have recovered all the money invested.
The formula to calculate the present value annuity factor is,
1−
= (
1
(1 + )
)

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Where C is the expected cash flow, T is the time frame, and r is the annual/ acceptable
interest rate. The decision to invest in the equipment should solely be for the improvement of the
company. If the decision is made to support a brother’s business, it will be unethical and would
question every decision made in the company. Buying a product because a relative owns the
business disqualifies the thorough inspection of the quality of the product.
Table 4:
Cookie Business
As the owner of the Cookie Business, you are considering the following investment:
Purchase of new equipment
Expected annual increase in sales
Time frame
Acceptable rate needed
$ 250,000.00
$ 48,017.50
7 years
9%
Calculate the Internal Rate of Return:
PV of annuity factor
Internal rate of return
5.0374
8%
Accept or reject
ACCEPT
PV of Annuity Table
n
1%
2%
3%
4%
5%
1 0.9901 0.9804 0.9709 0.9615 0.9524
2 1.9704 1.9416 1.9135 1.8861 1.8594
3 2.941 2.8839 2.8286 2.7751 2.7233
4 3.902 3.8077 3.7171 3.6299 3.546
5 4.8534 4.7135 4.5797 4.4518 4.3295
6 5.7955 5.6014 5.4172 5.2421 5.0757
7 6.7282 6.472 6.2303 6.0021 5.7864
8 7.6517 7.3255 7.0197 6.7327 6.4632
9 8.566 8.1622 7.7861 7.4353 7.1078
10 9.4713 8.9826 8.5302 8.1109 7.7217
11 10.3676 9.7869 9.2526 8.7605 8.3064
12 11.2551 10.5753 9.954 9.3851 8.8633
13 12.1337 11.3484 10.635 9.9857 9.3936
14 13.0037 12.1063 11.2961 10.5631 9.8986
15 13.8651 12.8493 11.938 11.1184 10.3797
6%
0.9434
1.8334
2.673
3.4651
4.2124
4.9173
5.5824
6.2098
6.8017
7.3601
7.8869
8.3838
8.8527
9.295
9.7123
8%
0.9259
1.7833
2.5771
3.3121
3.9927
4.6229
5.2064
5.7466
6.2469
6.7101
7.139
7.5361
7.9038
8.2442
8.5595
10%
0.9091
1.7355
2.4869
3.1699
3.7908
4.3553
4.8684
5.3349
5.759
6.1446
6.4951
6.8137
7.1034
7.3667
7.6061
Part 5 Cash Budget
An estimated cash receipt predicts the cash flow that a business will receive from its
operations after a particular period (Keythman, 2022). The Sugar Rush Cookie company expects
to collect 80% of its credit sales on the month of sale, while 20% is collected during the month
after the sale. In January, the business will collect 20% of December’s sales plus 80% of its total
sales. In February, the company will collect 20% of January’s sales and 80 %. In March, the
company will collect 20% of February’s sales plus 80% of its sales that month. This procedure
12%
0.8929
1.6906
2.4018
3.0374
3.6048
4.1114
4.5638
4.9676
5.3283
5.6502
5.9377
6.1944
6.4236
6.6282
6.8109
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helps keep track of cash flow more accurately since it is dependent on observations made from
experience in the company. The business also knows when to expect a drop in sales and can
strategize on how to overcome these challenges. It also has its disadvantages, including
eliminating rewards and limiting the company’s power to spend.
Table 5:
Cookie Business
The budgeted credit sales are as follows:
December last year
January
February
March
$
$
$
$
Collection:
Month of the sale
Month following the sale
250,000
125,000
300,000
90,000
80%
20%
Estimated cash receipts
Current month’s sales
Last month’s sales
Total
$
$
$
January
February
March
100,000 $ 240,000 $ 72,000
50,000 $ 250,000 $ 60,000
150,000 $ 490,000 $ 132,000
Part 6 Material and Labor Variance
Variance in accounting is the difference between what was predicted and the actual
expenditure figure (Gray, 2021). If the value is positive, then the variance is favorable. If the
value is negative, then the variance is unfavorable. In the Sugar Rush Cookie company, there is a
negative variance in the price of materials. This means the budget was exceeded when it came to
buying the materials.
On the other hand, the quantity was favorable since there were more than predicted. The
labor rate and efficiency variances are unfavorable since both values are negative. This
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calculation serves as a reference point for future predictions and budget planning for the
business.
Table 6:
Cookie Business
Actual Cost of Direct Materials
Standard Cost of Direct Materials
Actual Materials Used
Standard Materials Used
$
$
225,000
224,800
30
31
Actual Direct Labor Rate
Standard Labor Rate
Actual Hours Worked
Standard Hours Worked
$
$
15.50
15.00
45
40
Amount
Favorable/
Unfavorable
Calculate Materials Variances:
Materials Price Variance
Materials Quantity Variance
$
$
(200) unfavourable
1 favourable
Calculate Labor Variances:
Labor Rate Variance
Labor Efficiency Variance
$
$
(1) unfavourable
(5) unfavourable
Conclusions and Recommendations
In the report above, it can be concluded that the break-even point is zero in the Sugar
Rush Cookie Company. This statement means that the amount of products that need to be sold to
meet is zero. Therefore, the company has fully covered the costs and made a profit of 2,705,200
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dollars. The cookie with the highest contribution margin is the chocolate chip. Based on this
information, the chocolate chip cookie is the most profitable type of cookie. Full costing is better
for the business since it includes all the costs incurred and is more accurate when it comes to
visualizing the profitability of the company or business. The unique cookie is a good point for
the business as it can bring in a profit of 400 dollars for 1000 cookies despite the high discount
price. The decision to invest in the equipment should solely be for the improvement of the
company. If the decision is made to support a brother’s business, it will be unethical and would
question every decision made in the company. If the value is positive, then the variance is
favorable. If the value is negative, then the variance is unfavorable.
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References
Batubara, H. (2013). Penentuan harga pokok produksi berdasarkan metode full costing
pada pembuatan etalase kaca dan alumunium di UD. Istana Alumunium Manado. Jurnal
EMBA: Jurnal Riset Ekonomi, Manajemen, Bisnis dan Akuntansi, 1(3).
Corporate Finance Institute. (2021, January 7). Contribution margin – Overview, guide,
fixed costs, variable
costs. https://corporatefinanceinstitute.com/resources/knowledge/accounting/contribution
-margin-overview/
Gray, R. B. (2021, July 28). Variance in accounting | Meaning, formula, and analysis.
Patriot Software. Retrieved May 17, 2022,
from https://www.patriotsoftware.com/blog/accounting/variance-in-accounting/
Hill, A. (2020, January). How to calculate ending inventory using absorption costing.
Online Accounting. https://online-accounting.net/how-to-calculate-ending-inventoryusing-absorption/
Keythman, B. (2022). How to compute budgeted cash receipts. Small Business Chron.com. Retrieved May 17, 2022, from https://smallbusiness.chron.com/computebudgeted-cash-receipts-26020.html
Kumar, V., & Reinartz, W. (2016). Creating enduring customer value. Journal of
Marketing, 80(6), 36-68.
UNIT VIII STUDY GUIDE
Decentralization and
Performance Evaluation
Course Learning Outcomes for Unit VIII
Upon completion of this unit, students should be able to:
2. Apply accounting concepts to the creation of accounting information and reports.
2.1 Calculate performance measures used to make business decisions.
2.2 Present findings of accounting reports used in business decisions.
4. Discuss how the application of accounting knowledge is used in a leadership role
4.1 Identify the importance of responsibility accounting in leadership.
Course/Unit
Learning Outcomes
2.1
2.2
4.1
Learning Activity
Unit Lesson
Chapter 12, pp. 12-1 – 12-23
Unit VIII Lab Assignment
Unit VIII PowerPoint Presentation
Unit Lesson
Chapter 12, pp. 12-1 – 12-23
Unit VIII Lab Assignment
Unit VIII PowerPoint Presentation
Unit Lesson
Chapter 12, pp. 12-1 – 12-23
Unit VIII Lab Assignment
Required Unit Resources
Chapter 12: Decentralization and Performance Evaluation, pp. 12-1 – 12-23
Unit Lesson
Introduction
Welcome to the last unit, Unit VIII. We will be discussing performance evaluation techniques, including the
advantages and disadvantages of decentralized organizations in terms of cost controls, return on investment,
and the balanced scorecard approach.
Decentralization
Decentralization within an organization allows managers more authority to make decisions for their units.
There are advantages and disadvantages to this approach to decision-making. The advantages of a
decentralized organization include: quicker response times to issues and more detailed information for the
division managers that just highlights of their area. For example, using our computer company example with
two divisions, the manager of the laptop division would be able to gather information about production for just
this one division and make a decision quickly regarding the approval of overtime for the division. The laptop
manager would not have to wait for an approval from the factory manager who would be busy with issues for
both the laptop and desktop divisions. In addition, giving the division manager more authority to make
decisions may also motivate the manager to run the division more effectively and efficiently since he or she
has more authority to make decisions independently. Finally, in decentralized organizations that allow division
managers to make decisions that affect their unit can allow them to transfer these skills as a way to train
ACC 5301, Management Applications of Accounting
1
division managers for higher level management jobs within the organization since
are used
to making
UNITthey
x STUDY
GUIDE
their own decisions (Jiambalvo, 2020).
Title
There are also some disadvantages of a decentralized organization. For instance, there are often duplicate
tasks performed. In our computer company example, both the laptop and desktop computer division would
need their own purchasing departments and sales forces since each division is only handling their own
division. The other main disadvantage to a decentralized organization is that the goals of the individual
divisions may be in conflict with the company-wide goals. For example, one division may want to aggressively
expand the division, which may not be what is best for the company as a whole.
Responsibility Accounting
Under the concept of responsibility accounting, each level of management is responsible for what they can
control. In other words, a lower level manager at the computer manufacturer’s Atlanta laptop division would
not be able to control the cost of all of the factory’s overhead but would be able to control the cost of overtime
pay in the individual department. Looking at the chart below, you can see where each level of management
has responsibility over different costs.
Cost Centers, Profit Centers, and Investment Centers
Now that we have talked about the responsibility for controlling costs at various levels of management, we will
be discussing how this relates to the concept of center costing. Starting off with cost centers, this refers to the
idea that only costs are controlled by the manger. These costs could include machine maintenance, supplies,
or direct labor costs. Therefore, the manager is responsible for ensuring costs are as low as possible while
still maintaining quality when producing a product or providing a service. For example, the manager at the
Atlanta laptop division would control and review the costs for materials used and labor costs only within his or
her division. To see how well the manager is controlling these costs under the cost center approach, the main
evaluation technique would be based in variance analysis, where the manager would look at the actual cost of
material and labor for the division and compare that to the standard or budgeted costs for material and labor
for the division. Any variances that were discovered would be investigated to see how improvements could be
made in the future.
ACC 5301, Management Applications of Accounting
2
Profit centers refer to managers controlling both costs and revenue. For example,
manager
would be
UNITa xplant
STUDY
GUIDE
responsible for the sales that could be generated by the plant, less the costs to
run the plant. Using this
Title
technique, the Atlanta plant manager would look at the total revenue generated by the sale of computers
(both laptops and desktops) and also look at the costs associated with running the Atlanta plant as a whole.
To see how well this Atlanta plant manager is controlling these costs under the profit center approach, the
main evaluation technique would be based on net income for that plant. The manager would look at the actual
net income for the plant and compare the net income to the budgeted amount for that plant location. Any
differences that are discovered would be investigated to see how improvements could be made in the future
so that the plant as a whole is meeting net income expectations.
Finally, investment centers not only look at costs and revenue but also how well assets are being utilized.
This technique could be used, in our computer company example, at the plant level or at the company level.
For example, if the Atlanta plant manager is able to decide on which equipment to purchase for their particular
plant, the investment center approach could be used. The manager would not only look at revenue and costs
for the division but would also determine if the equipment they have purchased for their plant is producing a
return on the investment they made to buy that particular equipment. However, if all of the equipment is only
purchased at the top level of management, by the president of the company, for both the Atlanta and Miami
plants, then the investment center approach would be based on the company as a whole rather than on each
division. The way the profit center is evaluated is based on return on investment, which is the income divided
by the investment (Jiambalvo, 2020).
The chart below summarizes the concepts of cost, profit, and investment center approaches.
Return on Investment
Return on investment not only looks at how much income is being produced but also how an investment in
assets is being utilized. For example, let’s say the Atlanta plant and Miami plant both made $50,000 in income
last year and both purchased new equipment for their plants. At first glance, it appears that both plant
managers are doing equally well. However, now we will factor in the cost of the equipment. The Atlanta plant
manager spent $500,000 on their equipment, and the Miami plant manager spent $1,000,000 on their
equipment.
Atlanta = $50,000/ $500,000 =10% Return on Investment
Miami = $50,000/ $1,000,000 =5% Return on Investment
ACC 5301, Management Applications of Accounting
3
Therefore, when we factor in the cost of the equipment purchased, the two divisions
no longer
equal in
UNIT xare
STUDY
GUIDE
their performance. While income may be the same, the return on the investment
in Atlanta is 10% but the
Title
return on investment in Miami is half of that at only 5%. This means that the Atlanta plant is using the
equipment more efficiently (Jiambalvo, 2020). In other words, both divisions generated the same amount of
income, but since the equipment cost much less at the Atlanta plant, it has a higher return on the investment
that it made in the equipment.
Balanced Scorecard
The means of assessing performance that we have looked at so far are all calculated based on the past
performance. For instance, we look at costs spent, revenue generated, and even money already spent
on equipment. These approaches do not look at what is going on now and how a manager can create
future value.
The balanced scorecard approach looks at four performance measures, where the financial performance is
just one of the four elements. The other three elements include customer perspective, internal processes, and
learning and growth. All of these elements are combined to develop a strategy for future business success.
Now that we have identified the four components of the balanced scorecard approach, we will look at each in
detail. On the financial side, we look at how well the company is achieving its financial goals. This may
include calculating net income, return on investment, and cash flow. Next, we look at how well the company is
satisfying customer expectations. This may include rating customer satisfaction, calculating customer
ACC 5301, Management Applications of Accounting
4
retention, or even determining how many new customers were acquired. Next,UNIT
we look
at internal
processes.
x STUDY
GUIDE
This section looks at things like calculating turnover rates for materials and inventory,
Title determining how much
time it takes to fill an order, and even determining the number of defective products produced. Finally, we look
at learning and growth. This includes calculating how much money is spent on providing training to
employees, determining employee retention rates, and identifying the number of new products introduced into
the market (Jiambalvo, 2020).
Once the company has identified what it wants to measure, it then needs to determine how it will measure
that item. For example, if our computer company wants to measure customer satisfaction with their new
laptop purchase, the company could develop a customer survey that could measure how customers feel
about the product they just purchased by rating the satisfaction levels. Another example may be that if the
computer company calculated a high defect rate while looking at its internal processes, then it may want to
calculate how much money was spent on employee training in the learning and growth category. This may
produce a correlation between the high defect rates, and maybe not enough money spent on employee
training; so, in the future, the company can lower the defect rate by providing additional training to employees.
Conclusion
In this unit, we have looked at various ways to evaluate management performance based on the concept of
decentralization and responsibility accounting. In other words, we allow managers to make decisions based
on the level of responsibility they have within an organization. The higher the level of management, the more
responsibility they have to control company-wide costs. We also discussed the idea of cost, profit, and
investment centers as a way to ensure various levels of management are being evaluated on what they can
control in terms of costs only, revenue and costs, revenue, costs, and return on investments. Finally, we
discussed the concept of a balanced scorecard approach where a manager’s evaluation was not solely based
on financial data but also takes into account customers, internal processes, and learning and growth.
Reference
Jiambalvo, J. (2020). Managerial accounting (7th ed.). Wiley.
https://bookshelf.vitalsource.com/#/books/9781119577706
Suggested Unit Resources
View the following video by accessing the Unit VIII Additional Unit Resources folder in the unit.
The video Southwest Airlines: Balanced Scorecard will discuss how the use of the balanced scorecard
technique is used to evaluate performance.
You can access a transcript for this video by hovering over the PDF button at the bottom of the video and
then clicking on the word “Transcript.” Alternatively, you can click on the “cc” button at the bottom of the video
to turn on closed captions.
Learning Activities (Nongraded)
Nongraded Learning Activities are provided to aid students in their course of study. You do not have to submit
them. If you have questions, contact your instructor for further guidance and information.
After watching the video in the Suggested Unit Resources, you may want to view the Chapter 12 Flash Cards
found in the Additional Unit Resources folder to reinforce the material presented in this unit.
ACC 5301, Management Applications of Accounting
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