Annabelles Bakery Business Background As she sat in her Accounting I class bored while listening to the lecture on journal entries, Annabelle could not imagine being an accountant in the future. As a young girl, she remembered sitting in the kitchen while her mom and aunts baked those delicious Jamaican black cakes. She remembered that the cakes sold very quickly especially at Christmas time and that people were traveling from as far away as Florida to buy them. Her mom learned to bake from her mother, and she wrote down the cake recipes in case Annabelle or one of her siblings decided to follow in her footsteps. However, Annabelle chose to follow in her dads path and so she enrolled in college with plans to become an accountant. Her two older sisters where already studying to be a lawyer and a dentist. Annabelle had an epiphany as she sat in class, she would leave school at the end of the semester to open up a bakery specializing in Jamaican black cakes. Annabelle anticipated that most of her business would be based on special order, customized cakes. She anticipated selling cakes for family weekend gatherings, birthday and wedding celebrations, and holiday gatherings. She wanted to have a few cakes available in a store to appeal to the drop-in customer. In December 2017 Annabelle followed her plans; she dropped out of college, created a business plan, and incorporated as Annabelles Bakery Inc. Annabelle planned to open her business on January 1, 2018. She would use $50,000 inheritance from her mom as startup capital and receive a minimal salary of $500 per month for the first year of business. Uncle David, a marketing executive with a national bank, agreed to provide her with marketing support pro-bono. Annabelle found the perfect location for her business. A take-out restaurant on the busy intersection of Jamaica and Hillside Avenues in Queens, NY, became available after a bitter divorce between the owners. The landlord was impressed with Annabelles vision and agreed to pay for all renovations and charge her $600 per month for rent.

Cost Classification (Task #1) Her first action plan was to list all the key products or items that she would need to start the business. Annabelles list included a conventional oven, a cash register, baking pans, business licenses, health inspections, flour, sugar, baking soda, raisins, butter, eggs and rum. She also planned on hiring her accounting professor on a part-time basis to perform bookkeeping services and her nieces Brianna and Alexis, to help her in the bakery. Aunt Sue Ellen would supervise the girls so that Annabelle could focus on developing the business. Annabelles cost drivers are provided in Table 1. Annabelle needs your help in classifying the various costs. In order to manage these costs, she wants them identified using the information below. She asked that you use Table 2 for your answers. Required: 1. Using the Excel template provided, classify Annabelles costs using the categories below: a) Behavior (fixed or variable) b) Traceability (direct or indirect) c) Financial reporting (product or period) o If product cost, identify which items are direct materials, direct labor or manufacturing overhead.

Costing Systems (Task #2) Annabelle discussed the business plan with her accounting professor who agreed to serve as her part-time accountant. His first advice was for the business to develop a budget. Since Annabelle did not complete Accounting II, she was not aware of the various costing systems that exist in businesses. Her accounting professor told Annabelle of the three different types of costing systems that exist in organizations job order, process costing and activity-based costing. Required: 1. Using the Excel template provided, discuss which type of costing system Annabelles Bakery is most likely to use.

Business Transactions & Reporting (Task #3) Annabelle spent the month of December talking to various suppliers in order to determine her cost structure. She added cost data to the information in Table 1. Annabelles Bakery, Inc. opened for business on January 1, 2018 as planned. During the month of January, the business purchased and used 200 pounds of flour, 200 pounds of sugar, 67 dozen eggs, 20 baking soda boxes, 200 pounds of butter, 100 pounds of raisins, 50 bottles of rum, and the other ingredients (one box of each for a total of four) all from one supplier on account. Manufacturing overhead is applied to production at 4 dollars per cake. Annabelle purchased the oven using the startup capital and paid all salaries. Her nieces worked 300 hours in total for the month. January was a very good month for the bakery since it baked 200 cakes and sold all for cash. The average selling price was $50 per cake. Annabelle was not paying much attention to the discussion of how to record transactions in her one accounting class; however, she heard through her accountant that there is a manufacturing report that would provide her with the important information she needs. She believes that the report is called the Statement of Cost of Goods Manufactured. Required: 1. Using the Excel template provided, prepare the Statement of Cost of Goods Manufactured for January (be mindful of any indirect materials aka MOH you identified in Table 2). 2. Using the Excel template provided, prepare an Income Statement for the month of January (Hint: cost of goods manufactured becomes the cost of goods sold when all product that is made is sold).

Breakeven Analysis/Target Sales (Task #4) Although business was off to a good start in January, Annabelle realized that she will need to be profitable to continue as a viable business. Annabelle discussed the subject of profitability with her accountant who suggested that she first needs to determine her breakeven point in both unit sales and dollars. He explained to her that breakeven is the point where all costs are covered by sales and so, profit is equal to zero. He also suggested that the company should establish a monthly target profitability to determine the number of cakes it would need to sell to achieve this level. Since Annabelle did not know how to perform this calculation and to save money, she asked you to calculate the companys breakeven point and the target sales need to achieve a monthly profit of $500. Required: Calculate Annabelles Bakerys breakeven point in both units and sales dollars. Also, calculate the sales needed to achieve a monthly profit of $500. 1. Using the Excel template provided, prepare a contribution margin format income statement. Use your cost classification chart from Task 1 to aid you in determining your fixed and variable costs. Using the contribution format income statement, determine the breakeven point and target profit as required above.

Table 1: Costs Item and Ingredients Cost Standard per Cake 100 per month $24 per 8 pounds ba 0 (paid for by dad) $6 per 14 pounds box $6.50 per 4 pounds $12 per month (rental for 2 years) $6,000 Idepreciated over 5 years on a SL basis. No salvage valuel $2 per dozen $4.00 per cake $50 per month S30 for all 4 boxes per montlh $8 per 2 pounds $0 (provided by the landlord) $600 per month $12 per bottle $8 per hour S500 per month 100 per month $15 per 25 pounds ba $50 per month Accountant Bakingfilour Baking pans, licenses Baking soda Butter Cash Register Conventional oven n/a n/a Estimated MOH Mobile phone (business) Others (currants, diced date, nutmeg, molasses Raisins Refrigerator Rent Rum (alcohol alary-hieces Salary- Annabelle Salary-aunt Sugar Utilities includes gas, electric and wat gtr of bottle 1 person 1.5 hours per cake 1 pound Table 1 Costs Table 2 Cost Classifications Costing System Cost of Goods Manufactured Income Statement Breakeven Analysis Table 1: Costs Item and Ingredients Cost Standard per Cake 100 per month $24 per 8 pounds ba 0 (paid for by dad) $6 per 14 pounds box $6.50 per 4 pounds $12 per month (rental for 2 years) $6,000 Idepreciated over 5 years on a SL basis. No salvage valuel $2 per dozen $4.00 per cake $50 per month S30 for all 4 boxes per montlh $8 per 2 pounds $0 (provided by the landlord) $600 per month $12 per bottle $8 per hour S500 per month 100 per month $15 per 25 pounds ba $50 per month Accountant Bakingfilour Baking pans, licenses Baking soda Butter Cash Register Conventional oven n/a n/a Estimated MOH Mobile phone (business) Others (currants, diced date, nutmeg, molasses Raisins Refrigerator Rent Rum (alcohol alary-hieces Salary- Annabelle Salary-aunt Sugar Utilities includes gas, electric and wat gtr of bottle 1 person 1.5 hours per cake 1 pound Table 1 Costs Table 2 Cost Classifications Costing System Cost of Goods Manufactured Income Statement Breakeven Analysis