Question

nts Project 1 Assignment-(Case study located in Module 2) Humble Pies are asking several firms to provide a proposal recommending what type of costing approach will help them determine more accurate cost information for Humble Pie's Bakery' pricing and product decisions. You can enter your answers in Word or Excel or on paper and upload here. First read the case study and then answer the following questions: ine Tu- еу 1. Of the expenses listed in Table 1, determine which should be treated as product costs and which should be treated as period costs for management decision making? (10 points) 2. For each product cost you identified, how would you track the cost? For example, would you track it by individual job, batch, production step, activity, general factory overhead, et? (5 points) 3. Assume Beginning Work in Process Inventory is 7000. Raw Materials added are 2000. Labor for this period is 5500. MOH for this period is 1500 and the ending inventory is 6000. Calculate and Determine the COGM. (10 points) 4. Assume Beginning FGI is 1285. Ending FGI is 920. Work in Process has been derived from the previous question. Calculate and Determine the COGS. (10 points) 5. Of the expenses listed in Table 1, determine which costs are direct and which are indirect? (10 points)

Answer 1

1 Raw materials Bakery labour Administrative salaries Supplies Freight & Shipping-in Freight & Shipping -out Utilities - Factory Utilities - Gas(ovens) Water Repairs and Maintenance Rent expense Telephone & Internet Co-owner's salary Broker's commission Product cost Product cost Period cost Product cost Product cost Product cost Product cost Product cost Product cost Product cost Period cost Period cost Period cost Period cost 2 Raw materials Bakery labour Administrative salaries Supplies Freight & Shipping -in Freight & Shipping -out Utilities - Factory Utilities - Gas(ovens) Water Repairs and Maintenance Rent expense Telephone Internet Co-owner's salary Broker's commission Individual job Production step Administrative expense Production step Consignments received Units ships Production step Production step Production step General factory overhead Administrative expense Administrative expense Administrative expense Selling expenses 3 Direct material Direct labor Manufacturing overhead Total manufacturing cost Beginning WIP Total cost of WIP Ending WIP Cost of goods manufactured $2,000 $5,500 $1,500 $9,000 $7,000 $16,000 $6,000 $10,000 4 Beginning Finished Goods inventory Plus: Cost of Goods manufactured Cost of Goods available for sale Less: Ending Finished Goods inventory Cost of Goods sold $1,285 $10,000 $11,285 $920 $10,365 5 Raw materials Bakery labour Administrative salaries Supplies Freight & Shipping-in Freight & Shipping-out Utilities - Factory Utilities - Gas(ovens) Water Repairs and Maintenance Rent expense Telephone & Internet Co-owner's salary Broker's commission Direct cost Direct cost Indirect cost indirect cost Direct cost Part of Direct material Indirect cost lindirect cost Indirect cost Indirect cost Indirect cost Indirect cost indirect cost Indirect cost Indirect cost $11.89 $766,667/64500 $9.37 5a Selling price Variable cost per unit Contribution margin (Sales-VC) Contribution margin ratio (Contribution margin /Selling price) $2.51 21.14% Working notes: $327,934 $158,767 considered as variable $3,833 $4,907) Variable cost per unit Raw materials Bakery labour Supplies Freight & Shipping-in Freight & Shipping-out Utilities - Factory Utilities - Gas(ovens) Water Broker's commission Total Variable cost Total units Variable cost per unit $64,707 $9,813 $3,067 $9200 $30,667 $604,615 a 64,500 6 $9.37 a/b 6 Selling price Product cost per unit Gross margin per unit $11.89 $7.96 $3.92 Selling price - product cost is Gross margin per unit The product is profitable Raw materials Bakery labour Supplies Freight & Shipping-in Utilities - Factory Utilities - Gas(ovens) Water Repairs and Maintenance Total product cost Total units Product cost per unit $327,934 $158,767 $3,833 $4,907 $9,813 $3,067 $920 $4,293 $513,534 64,500 $7.96 7 Humble Pies can decrease the Variable cost by focusing on each element of cost Variable costs directly vary with production they are fixed at per unit level Hence the more the savings per unit the overall savings will be higher due to the variable nature of the cost. Each component of cost should be reviewed thoroughly. Standard costing system can be implemented to compare actual costs with the standard cost and variance analysis can be performed to see how costs are controlled. The variance can be analysed based on price and efficiency and helps in understanding the reasons for cost movements Also Flexible budgeting system can be introduced to control and reduce the costs Flexible budget compares the budgeted cost at actual level of activity and gives meaningful results to understand the variances.