HEAVENLY CREATIONS, INC.

A MANAGEMENT ACCOUNTING PROJECT

Revised 8/2017

INTRODUCTION

The objective of this project is to provide students with a practical application of some of the key concepts discussed in the managerial accounting course

LEARNING OUTCOMES

Students should be able to:

1. Identify the various costs that are part of a business environment and the three elements of product costs.

2. Differentiate between the different costing systems.
3. Illustrate business transactions using T-account analysis.
4. Prepare a trial balance using T-Account balances.

5. Prepare the statement of cost of goods manufactured and an income statement.

6. Calculate the break-even point in units and dollars, and target sales in units and dollars.

Business Background

As she sat in her Accounting I class bored while listening to the lecture on journal entries, Heaven Jones 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 Heaven or one of her siblings decided to follow in her footsteps. However, Heaven 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.

Heaven 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. Heaven 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 gathering. She wanted to have a few cakes available in a store to appeal to the drop in customer.

In December 201X Heaven followed her plans: she dropped out of college, created a business plan, and incorporated as Heavenly Creations. The bakery is in honor of her mom, Cleo, who passed away earlier in the year. Heaven planned to open her business on January 2, 2016. She would use the $50,000 inheritance from her mom as start-up capital and receive a minimum 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.

Heaven 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 Heavens vision and agreed to pay for all renovations and charge her $600 per month for rent. Heaven will be able to use baking pans and other kitchen utensils left by the previous tenant

Business Transactions (Assignment #3)

Heaven 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.

Heavenly Creations, Inc. opened for business on January 1, 201X as planned and Heaven placed an initial deposit of $10,000 of cash into the business. First, Heaven made a purchase to stock her inventory. Heaven purchased $2,279 of direct ingredients and $150 of indirect ingredients on account for the cakes. During the month of January, the business used 200 pounds of flour, 200 pounds of sugar, 67 dozen eggs and had 4 bad eggs to dispose of during the month. 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).

Manufacturing overhead is applied to production at 4 dollars per cake. Heaven paid cash for the purchase of the oven and all the 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. All manufacturing overhead is closed out at month-end. The supplier was paid in full at month-end. Heavens Raw Material physical periodic inventory count resulted in an Inventory level valued at zero at month-end.

Required: Use Table 3 to record and post the Heavenly Creations, Inc. January transactions using the General Journal and the provided T-accounts (round all calculations to 2 decimal places) All other costs such as utilities, must be accounted for in the T-accounts provided (assume such transactions where applicable, are paid in cash).

29	Paid payables for cash register and phone
29	Recorded completion of cakes that are available for sale
29	Recorded Cash Sale of Cakes
29	Record Payment of Indirect Product Cost - Utilities and Rent
30	Paid Labor for Month
31	Recorded Depreciation of Oven
31	Recorded MOH Allocation Adjustment
31	Recorded Raw Material Inventory Adjustment