Delicious Chocolate Case

In the early 2000s, Giacomo Belli launched an artisanal production of chocolate bars in his garage in Milan under the brand of Delicious Chocolate. After a decade of home-made production, Giacomo decided to move a step forward to industrial production. He purchased a piece of land and built a new plant of 20,000 square feet of which 14,000 dedicated to the production. Moreover, in the new plant he built a shop to sell directly to customers. The main products of chocolate were: Pralines, Chocolate bars, Chocolate cream, Box of Chocolates and Napolitain.

Traditional Costing System

Product Category	LB per Year	Price Per LB	Direct Material Per LB	Direct Labor Hours per lb
Loose Praline	8,600	22	4.6	0.35
Chocolate Bar	6,800	23	6.6	0.22
Chocolate Cream	7,900	26	6.9	0.27
Box Chocolates	6,100	46	11.1	0.81
Napolitain	7,000	53	12.1	0.75

Total labor hours were 16,830, total labor costs were $ 218,790, while total overhead costs were $ 347,060, as follows:

Requirements

1. Using Microsoft Excel, prepare a comparative analysis of the old costing system (traditional costing method) versus ABC costing systems. By means of an income statement in good form, show the gross and operating margins for each costing method. Specifically, prepare one table using the old costing system and one table using the ABC system. Add a column with results in percentages. Your aptitude in Microsoft Excel will be incorporated into the grading rubric for this project. Your ability to provide an aesthetic functional work paper is being examined. Excel is a useful tool in the Accounting profession and your future employers will expect you to exhibit proficient level of competency. Your tables should be formatted appropriately in a fashion that is easy to follow with logical processing.

2. Write a concise explanation (max 3 paragraphs) based on the evidence provided by your analysis. The first paragraph should explain the process you employed to determine appropriate cost driver cost activity relationships. The second paragraph should explain your discoveries in changing costing methods. The third paragraph should contain your recommendations to Giacomo about the strategy that should follow to increase the value of the company.

Table 2: Overhead costs Power (production) Power (facility) Production line cleaning Setup Maintenance Software (order processing) Equipment insurance Building insurance Office services (order processing) Building depreciation Equipment depreciation Office employees (order processing) New products test Products R&D 49,600 15,170 $13,700 $18,300 50,060 9,280 $12,300 13,200 9,950 43,300 $25,300 58,650 7,800 $20,450 Afterwards, the finance director examined the internal production processes to identify appropriate activity cost pools and multiple cost drivers. The following data were collected Table 3: Data for ABC analysis Machine hours per Lb N of BatchesN of Orders Maintenance New Facility sq/ft Product used for per Yearproduction Product Hours Loose Praline Chocolate Bar Chocolate Cream Box of chocolates Napolitain 0.75 0.53 0.67 1.70 2.10 190 180 250 580 650 10 13 9 26 35 500 500 1,800 3,800 5,400 89 105 9 12 Six activities were identified: production (unit level), batch processing (batch level), technical support (product level), order processing (product level), product development (product level) and facility (facility level)