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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- to five-page written report (including spreadsheets) with at least two scholarly sources using the Unit III 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.

 

 

Sample Solution

Job Order Costing

  • Direct Materials:
    • Flour: $10/lb
    • Sugar: $8/lb
    • Butter: $15/lb
    • Chocolate Chips: $20/lb
    • Eggs: $5/dozen
    • Total Direct Materials: $820
  • Direct Labor:
    • Two employees working for two days at $15/hour = $480
  • Manufacturing Overhead:
    • 30% of direct labor costs = 0.3 * $480 = $144
  • Total Cost:
    • Direct Materials + Direct Labor + Manufacturing Overhead = $820 + $480 + $144 = $1,444
  • Cost per Cookie:
    • Total Cost / 1,000 Cookies = $1.44/cookie

Job Order Cost Sheet

Job Number Description Direct Materials Direct Labor Manufacturing Overhead Total Cost
1 1,000 Cookies $820 $480 $144 $1,444

Process Costing

  • Conversion Costs:
    • 40% of total costs = 0.4 * $1,444 = $577.60
  • Cost per Cookie:
    • Total Cost / 1,000 Cookies = $1.44 + $0.5776 = $2.0176/cookie

Production Cost Sheet

Process Direct Materials Direct Labor Conversion Costs Total Cost
Mixing $200 $160 $228.80 $598.80
Baking $200 $160 $228.80 $598.80
Packaging $200 $160 $228.80 $598.80

Sales Price

I would plan to set the sales price per cookie at $2.50. This would give me a profit of $0.48 per cookie.

Comparison of Costing Methods

The two costing methods used in this project are job order costing and process costing. Job order costing is used when each unit of product is unique, while process costing is used when units of product are produced in a continuous process.

In this project, the job order costing method would be more appropriate because each cookie is unique. The process costing method would not be as accurate because it would not take into account the individual costs of each cookie.

However, the process costing method is more efficient because it does not require as much record-keeping.

Which Method Provides the Most Useful Information as a Manager?

As a manager, I would prefer to use the job order costing method because it provides more detailed information about the costs of each cookie. This information would be useful for making decisions about pricing, product mix, and cost-cutting.

The process costing method would not be as useful because it does not provide as much detail about the costs of each cookie. However, the process costing method could be useful for tracking overall costs and making decisions about production capacity.

Ultimately, the best costing method for a manager to use depends on the specific needs of the business.

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