The purpose of this case study is to help you integrate the managerial accountin
ID: 2577773 • Letter: T
Question
The purpose of this case study is to help you integrate the managerial accounting concepts that were covered in class and apply them to a real-world business setting. Business Description You will assume the role of an entrepreneur starting a small company. Your company will produce and sell gourmet cupcakes through a storefront in a location of your choice. Your business is scheduled to launch on January 1, 2018. Cost information: 1 Cost of goods sold: a. Ingredients are .30 per cupcake b. Boxes and Cupcake Cups are .05 per cupcake 2 Equipment that will be required to be acquired at the start of business includes ovens, racks, display case, counter, cash register, and other baking equipment and will cost $140,000. The equipment is expected to last 10 years without salvage value. Straight-line method of depreciation should be used. 3 On average one person can make, bake, and decorate 24 cupcakes per hour. Bakers are paid $15.00 per hour. 4 Sales personnel are required for 56 hours per week and are paid $10.00 per hour. 5 Monthly rent, which includes utilities, is $1,500. 6 Business insurance is purchased at a cost of $1,000 per year. 7 Advertising costs are expected to be $6,000 per year. Requirements: Using separate tabs in a spreadsheet, provide your answers for the following.
4 Write out the annual cost formula in Y = a + bX format (5 points).
5 Develop a price using a target price (what do you think a customer will pay for one of your cupcakes? What are other companies charging for gourmet cupcakes?) Provide support for your target price
6 Develop a price using cost-based pricing assuming that you expect to sell 24,000 cupcakes the first year and would like to have a 20% profit
Explanation / Answer
Producton cost per cup cake
$
Cupcake Cost
Ingredients
-/30
Cupcake cups
-/05
Direct Labour per hour $15/24 cupcakes
-/625
PRIME COST
-/975
Annual cost formula:
Y = a + bX
=65880 + 24,000 x .975
= 65880+ 23400
= 89280
ANNUAL EXPENSES
$
Rent
18000
Sales salaries 56hrs X 4weeks X $10 X 12 mths
26880
Insurance
1000
Advertising
6000
Depreciation $140000/10
14000
TOTAL
65880
65880 /24000 CUP CAKES=
.2.745 per cup cake
TOTAL COST
3.720
MARK UP 20%
.744
SALE PRICE
4.464
Producton cost per cup cake
$
Cupcake Cost
Ingredients
-/30
Cupcake cups
-/05
Direct Labour per hour $15/24 cupcakes
-/625
PRIME COST
-/975
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