The paper critically examines the best business approaches that can be utilized in starting a cookie business and ascertaining its success. The analyzed approaches include cost analysis for direct, labor, and manufacturing overhead costs. These form critical aspects that influence the overall business decisions that essential to make the cooking business a success. The concepts and topics analyzed that are critical to make the cookie business a success include costing estimates and calculations, assessment of different costing methods, and their impact to the business. Thus, culminate in making the best decision in which the company is bound to follow to maximize on profit generation from the cookie business.
Unit II Project: Cookie Business
The paper comprises of approaches and mechanisms that can be utilized in opening and running a cookie business. This is based on the analysis of various business concepts such as product costing including direct materials, direct, and overhead in the impact on business decisions. The analysis is designed to provide the best approaches that can ascertain high competitiveness and capacity to attain a successful business. The paper critically examines the price and quantity variations and how they affect the sale of the cookies. Hence, it impacts in the understanding of product costing, prices, and sales in the market. Consequently, the paper is intended to provide a roadmap in which business decisions, strategies and product costings can be utilized to maximize the sales and potential benefits.
Part 1 Establish Cookie Business
The cookie business will be operated under the company name “Clara’s Tasty Cookies” located in Los Angeles (LA), California. The location of Clara’s Tasty Cookies is expected to operate from the town center where it is in close proximity to diverse potential customers. The target customer cuts across all age brackets most especially young, adolescent, teens, and adults (3-50 years). To facilitate the running of Clara’s Tasty Cookie, the company has two employees that will be responsible for the production and making sales of the cookies. Therefore, they are expected to meet high level professionalism and commitment to their work.
The mission statement guiding the company’s operations in the cookie business entails “offering our customers the best, tasty and healthy cookies.” The cookie type specialization will entail Chocolate Oatmeal Cookie as indicated in Figure 1 below. Chocolate Oatmeal Cookie is designed as a healthy food that has profound benefits to consumer. This is critical to ensure that the cookie product helps the company build a positive reputation of being concerned and oriented towards consumer health. Hence, the cookie business’ selection of Chocolate Oatmeal Cookie provides more than taste and good feeling of eating a sweet and good cookie. Rather, it provides additional health benefits as complements.
Figure 1: Chocolate Oatmeal Cookie.
(Source: Sally Baking Addiction, 2017).
Part 2 Costing and Sales Information
The cost estimates for the cookies takes into account the production costs, labor, and the materials used in making the cookies. Due to the need of producing quality Chocolate Oatmeal Cookies, all ingredients used are high standards and meet the highest quality in the market. The company expects to produce premium priced cookies that offers the best quality to the customer. The cookie production takes approximately two days with a manpower of two employees. The employees are expected to work for three hours a day in the preparation and production of 1,000 cookies as the production quantity target objective.
The direct material costs comprise of eight total ingredients that are key to the production of the targeted number of cookies. The ingredients used are summarized in Table 1 below. The total cost of the ingredients accumulates to $33.
The direct labor cost of two employees working for three hours a day for two days at a rate of $15 per hour accumulates to $90. The direct labor cost offers the two employees a premium pay to motivate and encourage them in producing the best cookies possible. This is fundamental to achieve the objective of quality and high standard cookies (Levant & Zimnovitch, 2013).
The manufacturing overhead at 30 percent of direct labor costs accounts to $27. This builds the production cost of 1,000 cookies to $150. Hence, the production cost per unit is $0.15. Therefore, with a 40 percent conversion costs, the price is determined to sell at $1. The processing cost of 40 percent provides a $0.21 value which adds to the production cost per unit. The total accumulated cost in the production and processing per unit is $0.36.
The top three processes encountered in the production of the cookie comprise of the production, marketing, and sales. The production cost accumulated to $0.15 per unit with the marketing cost accumulating to $0.21. The sales management is essential to ensure the financial analysis and efficiency. Therefore, a cost of $0.14 per unit will be incurred. In overall, each cookie to be produced and sold to the consumer takes $0.5. Thus, justifies the price of $1 per cookie enabling the company to make a profit of 100 percent, i.e., production to profit ratio of 1:1.
Part 3 Compare and Contrast Costing Methods
The costing methods are fundamental to making the most efficient business decisions. As a start-up company, Clara’s Tasty Cookies in determining the most effective costing method to utilize will examine batch costing, process costing, and unit costing. Batch costing takes into account the cumulative costs required for the production of the target production volume. This puts all costs in a general cost (Teplická, 2015). The process costing accounts for the cost of each stage of the production. Each stage varies in the costs incurred. Hence, influences the overall cost required in the production of the target cookies. The unit costing is applied for continuous and identical units (Teplická, 2015). This provides the value incurred in making a unit product ready for sale in the market. The unit costing is the most preferred approach as it is essential in guiding the cost estimate for each unit. Thus, enable the company to estimate the overall value each cookie will make to the company (Levant & Zimnovitch, 2013).
Part 4 Impact of Increase and Decrease in Sales
The increase in the number of cookies sold will have a direct impact on the revenue generated by the cookies. As well, a decrease in the number of cookies sold will have a subsequent impact in the revenue generation. This is based on the fact that each cookie is expected to make a hundred percent profit. Therefore, the value of profit fluctuates based on the quantity/volume of cookies sold.
Conclusions and Recommendations
The analysis of costing methods, examination of different types of products and processes involved were integral to making the final decision. This is essential in making viable business decisions that are helpful to the company. Hence, enable meeting of the set objectives in both production and sales of the cookies.
Levant, Y., & Zimnovitch, H. (2013). Contemporary evolutions in costing methods: understanding these trends through the use of equivalence methods in France. Accounting History, 18(1), 51-75.
Sally Baking Addiction. (2017, May 15). Chewy oatmeal chocolate chip cookies. Retrieved from https://sallysbakingaddiction.com/oatmeal-chocolate-chip-cookies/
Teplická, K. (2015). Comparison of Methods for Pricing of the Product and its Impact on Economic Efficiency of Enterprise. Procedia Economics and Finance, 34, 149-155.