Elizabeth and Alicia 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, Piece of Cake 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. And, since the company does not currently track labor hours by product, Elizabeth and Alicia 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. Elizabeth and Alicia'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 staff that can do some basic record keeping while the Controller manages financial 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 Piece of Cake Pies 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 C's": cost, consumer and competition. As a bare minimum, the company wants to achieve a target 17% gross profit margin (or higher) on cost, but Elizabeth and Alicia consider what a consumer is willing to pay the most important factor in pricing. They want to be sure to keep Piece of Cake Pies competitive with other companies. Table 1 provides selected actual cost and revenue data for May 2020. Additional information about costs can be found in the Notes to Selected Financial Data below.

1. What information does Piece of Cake Pies 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 Piece of Cake Pies' product costing system should be able to provide.