Cookie Business Final Presentation Now that you have completed running some calculations for the cookie business in Unit VII, y

Title of the Paper Goes Here

Student Name

Institution

ACC 5301 Management Applications of Accounting

Instructor

Date

Abstract

The contributing margin is used to compare the performance of different products and determine if they are profitable or not. It used in determining the products to put emphasis on and the product to do away with.

The present value is used to determine the current value of a future sum of money today at a specific rate of return. It is used to determine if an investment is worth investing.

Variance is used to determine the difference between standard and actual costs incurred in production. When the variance is unfavorable, the cost of production is higher than the standard cost while when the variance is favorable, the cost of production is lower than the standard cost.

Cookie Business Final Project

Contribution margin is the difference between revenue and variable costs (sales revenue- variable costs) this takes into account the net income which is obtained from net sales, variable costs, and fixed costs (Gutiérrez, 2021). The break-even point is the number of units the business needs to sell to cover fixed cost. The weighted average contribution margin is the average amount that a group of products contribute to paying the fixed costs of a business.

The variance in production is used to determine the deviation of cost incurred of production from the standard cost. This is important in developing ways to improve production and reducing wastage.

Material price variance is the difference between the standard price and the actual price for the actual quantity of material used in production. The material price variance is favorable when the standard material cost is higher than the actual material cost.

Part 1 Contribution Margin/Breakeven

Data in business is used to make decisions. The number of sales made determine the demand while contribution margin determines if a product is profitable which is easily calculated using the contribution margin formula. Diversification is important in business although having products that does not generate cash flow can lead the business to bankruptcy. This makes contribution margin important. Products with low contribution margin means they are not performing well and the business owner can remove it from the production line. The business owner can also decide to promote another product that is generating a high contribution margin.

Contribution margin= net sales- variable cost

Contribution margin per unit= (net sales-variable cost)/number of units sold.

Per unit contribution margin helps to compare the different products where in our case specialty has the highest contribution margin then chocolate chips and lastly sugar meaning specialty generates the highest profit and then chocolate chips while sugar generates the least profit.

The weighted average contribution margin is the average amount that a group of products contribute to paying the fixed costs of a business. This is used in breakeven analysis.

Weighted average contribution margin= total of (contribution margin for each product*number of units sold)/total number of unit sales.

The products had a weighted average contribution margin above one which means the business is profitable and is paying the fixed costs.

The break-even point is the number of units the business needs to sell to cover fixed cost as explained by Gutierrez, & Dalsted, (1990). Which failure to cover them the business results in negative net profit and negative contribution margin.

Break-even point= fixed costs/per-unit contribution margin

The company break-even point is 959474 units.

Part 2 Full and Variable Costing

Absorption costing is used in inventory valuation and calculating the cost of the product in companies where all the expenses incurred by the company are taken into consideration. The full absorption costing is obtained by adding up all the costs incurred in the production process and allocating them to the products individually as stated by Nawaz, (2013).

Full absorption cost =direct labor cost per unit+direct material cost per unit+variable manufacturing overhead cost per unit+fixed manufacturing overhead per unit.

This gives the total cost of producing each product.

The ending inventory full absorption costing is the number of goods left as inventory in the company multiplied with the full absorption cost per unit.

The variable cost per unit only considers the variable cost of production which include direct labor cost per unit, direct material cost per unit and variable manufacturing overhead cost per unit.

This cost is used in determining the per unit cost of production and amount of inventory cost left at the end of a period.

Part 3 Special Order

The special order has a cost of production of $2.09 with an additional cost of design which makes the cost of production of the 1000 products to be $2691. The net revenue from sales of the 1000 product is $2750 after discount which makes the profit to be $59 from sales of the 1000 products.

Part 4 Internal Rate of Return

The internal rate of return is a discount rate used to identify potential future investments that will be profitable. It is used to make the present value of an investment to zero. This shows the percentage return from the investment required for it to break even when adjusted for the value of time and money involved as explained by Bora, (2015). This gives the minimum acceptable return on investment. With a rate of 9 percent for 7 years the investment PV is a negative which shows that it has not yet completed paying back the amount invested.

The IRR is found to be 5% taking the time frame to be 5 years. This will ensure that the amount invested have been recovered from the profit obtained.

The transaction is biased as one of the partners is pushing for the equipment purchase with other agenda apart from one of increasing the company production. The partner wishes to promote his brother’s business. This is unethical as it will lead to purchase of the equipment with unnecessary urgency which resulted from provision of false data and information. There may be another alternative better than purchasing the equipment which might be foregone in the process of the partner promoting his brother’s business.

Part 5 Cash Budget

February has the highest sale and cash flow as well as having the highest credit sales. The higher the credit sales the higher the amount of cash flow that result in the company in the same month. When the previous month has high credit sale, this means that the current year sales will be boosted.

Part 6 Material and Labor Variance

The material price variance is the difference between the standard price and the actual price for the actual quantity of materials used for production. Material price variance results form price changes, poor purchasing procedures and deficiencies in price negotiation.

Material price variance= (standard price-actual price) *actual quantity

The project had a material price variance of a negative value which means it was unfavorable as more cost was incurred than the standard cost.

The material quantity variance was a positive value which is favorable as less material was used than the standard.

The labor rate variance was unfavorable as it had a negative value. the rate for labor was higher than the standard value. The labor efficiency variance was unfavorable as the actual hours worked were more than the standard hours of work. When the labor and price variance is unfavorable, the cost of production is higher than the standard and expected cost which means less profit.

Conclusions and Recommendations

The company deals with production of chocolate chip, sugar and specialty.

Variance is used to determine if the production process is operating at a cost higher than the standard cost or lower or operating at the standard cost. When the variance is unfavorable there is less profit earned as the cost of production is higher while when the variance is favorable, there is more profit as less cost is incurred in production.

The management team should focus in maintaining the material price variance, quantity variance, the labor rate and efficiency favorable so as to reduce the cost of production.

References