Case Study 1 Sizzling Snakes

A history of Sizzling Snakes Sizzling Snakes, Inc. has been formed by Samar and Shahmeer who are childhood best friends. Though almost inseparable through high school, the two parted ways after graduation Samar heading abroad to study the art of pasty making in some of the most elite patisseries in Paris, and Shahmeer pursuing his love of food (especially bacon) by landing jobs in some of the finest restaurants in their hometown of Karachi. A chance encounter back in 2005 reunited the two and got them talking of their mutual love of food and what theyd been learning. Soon they were spending their free time crafting quirky but sophisticated (not to mention delicious) piespassing them out to friends and family, and building a grassroots fan base around town. When the operation outgrew, Samar and Shahmeer applied for a small business loan. With it, they bought a small pie factory in Islamabad and became the proud owners of a 60,000 square-foot facility where they now produce high-quality pies. A couple years ago, as demand for the pies grew to a national market (thanks to the companys Instagram account), the co-owners hired a new Controller, Management Accountant to help them continue to grow and stay profitable. Now they just landed their largest grocery store yet. In 2013, the company had $6.1 million in sales revenue and is on track to do $9.3 million this year. Samar and Shahmeer uses natural and organic ingredients, and combines Samars Parisian techniques with Shahmeers unexpected takes on classical southern desserts like Bacon Chocolate Chess, Avocado Key Lime and Chai Apple Pie. It offers three main product lines: Singles, as the name suggests, are a single serving, ready to eat on a plate. 9-inch pies are pre-sliced and sold to distributors for food service applications or grocery in-store bakery cases. 10-inch pies are packed in strong, clear plastic domes to be sold in refrigerated cases and with custom labels. The pies are available as a variety pack, a duo-pack (two different flavors) or a full pie. Samar and Shahmeer 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, Samar and Shahmeer cant 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, filling, baking and packaging. Sizzling Snakes makes five different crusts mixed in large batches, and fillings are produced in smaller batches depending on the production schedule. Next, crusts are filled with, well, the filling and placed on trays for baking (15 to 25 at a time depending on size). After theyve 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 uses just-in-time production methods. The goal is to produce a pie every five seconds. Since contaminated food would lead to a visit by the Health Department (and possibly shutting down the factory), there are at least three sanitation workers 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 finished product. The plant typically runs two shifts per day with two production supervisors assigned to each shift. For each of the three product lines, the process is virtually the same regardless of the flavors or ingredients. But the processes between the product lines can be very different (e.g., packaging for variety packs takes much longer than for whole pies because workers need to pull different flavor slices and place them on the same tray). Not to mention the packaging variessome go in boxes while others go in plastic containers, and some package tops and labels take longer to place than others. Sizzling Snakes 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 $1.5 million. October through December tends to be a higher volume period (with increased demand for holidays like Eid, Independence day and New Years), resulting in Sizzling Snakes 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 significantly slows down production time. Reports Sizzling Snakess managers rely heavily on a Labor Report to manage its work force. The report lists eight 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 by the employee pay rate (from $8.50-$12.50 per hour) to get expected monthly gross pay amount for each hourly employee based on a 40-hour workweek. 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 closely 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 profitable and some were not. Currently, Sizzling Snakes 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*

Samar and Shahmeer are skilled at determining the cost of ingredients, but when it comes to labor and the overhead of each product line, theyre not sure where to start. At the moment, Sizzling Snakes 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. And, since the company does not currently track labor hours by product, Samar and Shahmeer have no idea of labor cost or profitability by product line. A digital biometric time clock keeps track of hours for the employees, but management is open to asking shift workers to track their hours by job or batch. Samar and Shahmeers primary concern is making sure there is a good reason to change the method and that theres a simple and low-cost way to track it. The company has a small but growing administrative staff that can do some basic record keeping while the Controller manages financial reporting, taxes and decision analysis. The Controller has asked for help determining a product costing system Sizzling Snakes can use for pricing decisions, product line profitability analysis, financial planning and helping managers understand the business. But costs are only one component. The company currently bases pricing decisions on the three Cs: cost, consumer and competition. As a bare minimum, the company wants to achieve a target 17% gross profit margin (or higher) on cost, but Samar and Shahmeer consider what a consumer is willing to pay the most important factor in pricing. They want to be sure to keep Sizzling Snakes competitive with other companies. Table 1 provides selected actual cost and revenue data for May 2014. Additional information about costs can be found in the Notes to Selected Financial Data below.

Notes to Selected Financial Data Raw Materials: Includes main ingredients and flavour 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 dont always appear on the package label. 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, packaging and 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): Approximately 5% for administrative office and the remainder for the factory. The factory portion varies somewhat with production volume. Water: All for the factory and varies proportionately with production volume. Repairs & Maintenance: All for the factory. Rent expense: The factory uses about 85% of the total square footage of the building and the remainder is for the administrative office. Telephone & Internet: All for the administrative office. Co-owners salary: Samar and Shahmeer. Brokers commissions: Generally 4% of sales. Income Tax: Average total tax rate is 32%. Your teams assignment

I need these answers from the upper case study

1. What information does Sizzling Snake need? Before recommending a cost system, it is helpful to understand a company's information needs. Based on case information, discuss the types of cost information Sizzling Snakes' product costing system should be able to provide. 2. What are the different types of costs incurred by Sizzling Snake in the production and sale of its pies? 3. How are the costs classified in terms of their behavior, such as fixed, variable, or mixed costs? 4. How can you calculate the total cost per unit of each type of pie produced by the company? 5:51pm