1. For each product cost you identified, would you track or allocate the cost? If allocating, what would the driver be? Would you track it by individual job, batch, or activity? ( Please read the background information)

Table of product cost (and period cost identified).

*for decision making, management can assign any cost to the product that can be traced directly to the product.

Expenses Classification Raw Materials Product Bakery Labor Product Administration Salaries Product Supplies Product Freight & Shipping-In Product Freight & Shipping-out Product Utilities Electricity Product Utilities Gas (Ovens) Product Water Product Repairs & Maintenance Product Telephone & Internet (administrative) Period Co-owners' Salary Period Depreciation Expense: Plant Building Product (85%) Period (15%) Pastry Machines Product Mixers Product Filling Equipment Product Ovens Product Warehouse Freezers Product Brokers' commissions Period(4% of sales)Humble Pies uses natural and organic ingredients, and combines Linda's Parisian techniques with Taylor's unexpected takes on classical southern desserts like Bacon Chocolate Chess, Avocado Key Lime and Chai Apple Pie. It offers two main product lines: a 10-inch whole pies are presliced, boxed and sold to distributors for food service applications or grocery in-store bakery cases. a 10-inch variety pies are packed in strong, clear plastic domes to be sold in refrigerated cases and with custom labels. The variety packs contain two pieces of each kind of pie. Linda and Taylor love getting feedback from their fans and are always testing new recipes based on suggestions or grocer suppliers' needs. They often receive requests from food chains for different types and sizes of pies, and must decide which ones to accept and which ones to pass on. Pie production Naturally, Linda and Taylor can't reveal their recipes, but they have provided some details on how the pies are made. Most pies go through a general four-step process: mixing, lling, baking and packaging. Humble Pies makes five different crusts mixed in large batches, and fillings are produced in smaller batches depending on the production schedule. Next, crusts are placed in tins and filled with, well, the lling and baked for 45 minutes {20 at a time). After they've cooled for an hour, pies are decorated, sliced, packaged, and labeled and placed on pallets to freeze until shipped. It takes about a week to complete a pie product order and the plant usesjustin- time production methods. Since contaminated food would lead to a visit by the Health Department (and possibly shutting down the factory}, there are at least three sanitation|worke rs on duty at all times. Generally, there are 3-4 warehouse workers on duty to handle the shipping, receiving and storage of raw materials and nished product. The plant typically runs two shifts per day with two production supervisors assigned to each shift. For each of the two product lines, the process is combined in the same production line until the packaging area. The process is the same regardless of the flavors or ingredients for the production line {mixing taking about 3 minutes per pie, lling taking about 5 seconds per pie, and baking.) However, the processes between the product lines Every different in the packaging department, because the variety packs take much longer than for whole pies. Workers need to pull different avor slices and place them in the same tin for the variety pack. Not to mention the packaging is different. The whole pies go in boxes while the variety pies go in lidded plastic containers. Both lines have similar labeling requirements. Humble Pies seldom places its own labels and logo on any of their products. Label designs generally come from the customer, so they vary based on each order. The plant currently has capacity to do $1 million in sales per month, but with additional investments in ovens, mixers and workstations {for about $500,000} it could increase to 51.5 million. October through December tends to be a higher volume period {with increased demand for holidays like Thanksgiving and New Year's}, resulting in Humble Pies getting roughly 60% of its business during that time period. Because of the rush, the plant runs overtime and weekend shifts as needed to get the product to its suppliers. The owners believe the labeling process signicantly slows down production time. Reports Humble Pies' managers rely heavily on a \"Labor Report\" to manage its work force. The report lists four salaried workers and approximately 50 hourly employees, expected number of work days for the month, hours per day {typically 8} and total projected hours for the month. The hours are multiplied bythe employee pay rate {from 51050-51550 per hour) to get expected monthly gross pay amount for each hourly employee based on a 40-hour workweek. Production workers are paid as following: Mixing workers earn $10.50/hr, Filling and baking workers earn $10.50/h r, Packaging workers earn $15.50/h r. The sum of all expected hourly employee gross monthly pay amounts are added to the salaried production workers gross monthly pay and the projected total payroll added costs {Employer taxes, Social Security, etc.) to get \"total labor dollars\" cost for the month. The total labor dollars are divided by projected sales revenues to get a \"projected labor percentage.\" Management watches this number pretty closer and tries to keep it around 20% of sales. In the past, it was assumed that labor costs for the company did not change with sales volume, and some months were Mam some were not. Currently, Humble Pies' managers adjust labor hours up or down depending on the demand for pies and try to keep the projected labor near 20% of sales. Costing Issues Linda and Taylor are skilled at determining the cost of ingredients, but when it comes to labor and the overhead of each product line, they're not sure where to start. At the moment Humble -...---...-.f Pies allocates the same amount of overhead costs to every output unit. While total labor averages 20%, they believe that labor and overhead costs vary greatly by product line. And, since the company does not currently track labor hours by product line, Linda and Taylor have no idea of labor cost or protability by product line. A digital biometric time clock keeps track of hours for the employees, but management is open to asking shift workers to tracktheir hours byjob or batch. Taylor and Linda's primary concern is making sure there is a good reason to change the method and that there's a simple and low-cost way to track it. The company has a small but growing administrative staffthat can do some basic record keeping while the Controller manages nancial reporting, taxes and decision analysis, a skill she developed while working toward her CGMA designation. The Controller has asked for help determining a product costing system Humble Pies can use for pricing decisions, product line protability analysis, financial planning and helping managers understand the business. But costs are only one component. The company currently bases pricing decisions on the \"three C's\": cost, consumer and competition. As a bare minimum, the company wants to achieve a target 17% gross prot margin {or higher} on cost, but Linda and Taylor consider what a consumer is willingto pay the most important factor in pricing. They want to be sure to keep Humble Pies competitive with other companies. Table 1 provides selected actual cost and revenue data for May 2018. Additional information about costs can be found in the Notes to Selected Financial Data below. 1 Raw materials: 2 Labor: Crust ingredients ($.11) $7,120 Production Supervisors' Salaries $34,929 Filling ingredients($4.65) 300,165 Production line wages Packaging: ($10.50/br) 51,613 Tins ($.08) 5,065 Packaging labor ($15.50/hr): Labels ($.076) 4,916 whole pies 7,016 Boxes ($.11) 3,617 variety pack 31,359 Plastic containers ($.22) 7,051 Sanitation wages ( $15.50/hr) 18,940 $327,934 Shipping & receiving wages ($15.50/br) 14,910 $158,767Notes to Selected Financial Data Raw Materials: Includes main ingredients and flavor additives. Main ingredients are relatively higher cost items such as flour, sugar, eggs, nuts and fruit that appear on the package label. Flavor additives are relatively low-dollar cost items and a small part of the weight of the pie such as spices, dyes, salt, and certain oils that don't always appear on the package label. Besides the crust and filling ingredients, raw materials include the tins, packaging and labels. Bakery labor: The cost amount consists of 22% supervisory salaries and taxes and the rest hourly workers. Bakery labor workers are organized into four categories: production line (mixing, filling and baking), packaging, sanitation and warehouse (all included as part of cost of goods sold). Administration Salaries: Includes taxes and benefits for the Vice President of Operations, the Controller, Human Resources Manager and two administrative support people. Supplies: Includes supplies relating to production, decorating, sanitation and warehouse (think: adhesive, pastry bags, spatulas, scrapers, icing pens, gloves and so on). Freight & Shipping-In: The costs of shipping raw ingredients and other materials to the factory from suppliers. Freight & Shipping-Out: The costs of shipping finished products to customer locations and distribution centers. Utilities Electricity: Approximately 10% for administrative office and the remainder for the factory. The factory portion varies somewhat with production volume. Utilities Gas (ovens): The factory portion varies with production volume. Water: All for sanitation and varies proportionately with production volume. Repairs & Maintenance: All for production. Telephone & Internet: All for the administrative office. Co-owners' salary: Linda Jackson and Taylor Johnson. Brokers' commissions: Generally 4% of sales. Income Tax: Average total tax rate is 32%