Costing Systems Ava 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. Her accounting professor also told Ava of the three different types of costing systems that exist in organizations - job order, process costing and activity based costing. Required (Worth 30 points): Which type of costing system should Ava use? Explain why she should use this costing system (pros and cons). Business Transactions Ava 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. The bakery opened for business on January 1, 2020 as planned. During the month of January, the business purchased and 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 raisons, 50 bottles of rum, and the other ingredients (one box of each for a total of 'This is not an exhaustive list and instructors have the option of expanding it 2 The cost of these eggs is immaterial four) all from one supplier on account. Manufacturing overhead is applied to production at 4 dollars per cake. Ava purchased the oven using the start-up capital and paid all 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 at month end. Required (Worth 50 points): Document January transactions using T-accounts (round all calculations to 2 decimal places) All other costs such as utilities, must be accounted for in the T- accounts (assume such transactions where applicable, are paid in cash) Reporting Ava believes the Statement of Cost of Goods Manufactured would be helpful in managing the business. Required (Worth 30 points): Prepare the Statement of Cost of Goods Manufactured for January. Also, prepare an Income Statement for the month of January. Breakeven Analysis/Target Sales Although business was off to a good start in January, Ava realized that she will need to be profitable in order to continue as a viable business. She discussed the subject of profitability with her accountant who suggested that she first needs to determine her breakeven point in both unit sales and dollars. He explained to her that break-even is the point where all costs are covered by sales and so, profit is equal to zero. He also suggested that the company should establish a monthly target profitability in order to determine the amount of cakes it would need to sell to achieve this level. Ava asks you to calculate the company's breakeven point and the target sales need to achieve a monthly profit of $500. Required(Worth 40 points): Calculate Sweet Confections Bakery, Inc., breakeven point in both units and sales dollars. Also, calculate the sales needed in order to achieve a monthly profit of $500. Note: Use four decimal places in converting from total to per unit cost. Item and Ingredients Conventional oven Refrigerator Baking pans, licenses Baking flour Eggs Sugar Baking soda Butter Raisins Others (currants, diced date, nutmeg, molasses) Cash Register Rum (alcohol) Utilities (includes gas, electric and water) Mobile phone (business) Salary- Ava Salary-nieces TABLE 1: COST INFORMATION Salary-aunt Accountant Estimated MOH Cost $6,000 (depreciated over 5 years on a SL basis No salvage value) $0 (provided by the landlord) SO (paid for by dad) $24 per 8 pounds bag $2 per dozen $15 per 25 pounds bag $6 per 14 pounds box $6.50 per 4 pounds per 2 pounds $8 $30 for all 4 boxes per month $12 per month (rental for 2 years) $12 per bottle $50 per month $50 per month $500 per month $8 per hour $100 per month $100 per month $4.00 per cake Standard per Cake n/a n/a 1 pound 4 eggs 1 pound 1 pound pound 4 qtr of bottle 1 person 1.5 hours per cake Ra SWEET CONFECTIONS BAKERY INC. Business Background As she sat in her Accounting class bored while listening to the lecture on journal entries, Ava Smithfield 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 and decorated beautiful delicious 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 Ava or one of her siblings decided to follow in her footsteps. However, Ava chose to enroll in college with plans to become an accountant. Ava had an idea as she sat in class and decided to open up a bakery specializing in decorated cakes. Ava anticipated that most of her business would be based on special order, customized cakes. She anticipated selling cakes for birthday and wedding celebrations, and holiday gatherings. She wanted to have a few cakes available in a store to appeal to the drop in customer. In December 2019 Ava followed her plans; she dropped out of college, created a business plan, and incorporated as Sweet Confections Bakery, Inc. Ava planned to open her business on January 1, 2021. She would use a$50,000 inheritance as start-up.capital and receive a minimal 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. Excel Ava found the perfect location for her business. A storefront on the busy street Washtenaw Avenue in Ann Arbor, MI. The landlord was impressed with her vision and agreed to pay for all renovations and charge her $600 per month for rent. Cost Classification Table 1 Ava's first action plan was toffist all the key products or items that she would need to start the usiness. The list included a conventional oven, a cash register, baking pans, business licenses, ealth inspections, flour, sugar, baking soda, raisins, butter, eggs and rum. She also planned on iring her accounting professor on a part-time basis to perform bookkeeping services and her eces Brianna and Alexis, to help her in the bakery. Aunt Sue Ellen would supervise the girls sc at Ava could focus on developing the business. The business' cost drivers are provided in able 1. quired (worth 50 points): Ava needs your help in classifying the various costs. In order to anage these costs, she wants them identified using the information below. She asked that you Table 2 for your answers. a) Behavior (fixed or variable) indirect