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.

Cost Classification (Assignment #1)

Her first action plan was to list all the key products or items that she would need to start the business. Heavens list included a conventional oven, a cash register, 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 Heaven could focus on developing the business. Heavenly Creations cost drivers are provided in Table 1.

Required: Heaven 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.

1. Behavior (fixed or variable)

2. Traceability (direct or indirect)

3. Financial reporting (product or period)

4. If product cost, identify which items are direct materials, direct labor or manufacturing overhead.

Costing Systems (Assignment #2)

Heaven 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 Heaven did not complete Accounting II, she was not aware of the various costing systems that exist in businesses. Her accounting professor told Heaven of the three different types of costing systems that exist in organizations job order, process costing and activity based costing.

Required: Which type of costing system is Heavenly Creations most likely to use? Discuss?

Table 2

Behavior Traceability Reporting Product-classification Reporting

Fixed variable direct indiret product dm dl moh Period

Oven

Cash register

Rent

Utilities

Cell phone

Flour

Sugar

Baking soda

Butter

Raisins

Eggs

Rum

Other materials

Accountant fee

Briana salary

Alexis salary

Heavens salary

Aunt ellens sallary