K & J BAKERY INC.

Business Background

As she sat in her Accounting I class, bored while listening to the lecture on journal entries, Keisha 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 Keisha or one of her siblings decided to follow in her footsteps. However, Keisha chose to follow in her dads path, and so she enrolled in college with plans to become an accountant. Her two older sisters were already studying to be a lawyer and dentist.

Keisha 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. Keisha anticipated that most of her business would be based on special orders, customized cakes. She anticipated selling cakes for family weekend gatherings, birthday, 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 20X0, Keisha followed her plans; she dropped out of college, created a business plan, and incorporated as the K & J Bakery Inc. (K&J). The J is in honor of her mom, Jezebel, who passed away earlier in the year. Keisha planned to open her business on January 1, 20X1. She would use the $50,000 inheritance from her mom as startup 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.

Keisha 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 Keishas vision and agreed to pay for all renovations and charge her $650 per month for rent.

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. Keishas list included a conventional oven, a cash register, baking pans, business licenses, health inspections, 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 Keisha could focus on developing her business. K&Js cost drivers are provided in Table 1.

Required: Keisha 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)

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

Required: Discuss all costing systems and which one K&J Bakery would most likely use.

Business Transactions (Assignment 3)

Keisha 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.

K&J Bakery Inc. opened for business on January 1, 20X1, 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 5 rotten 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) all from one supplier on account. Manufacturing overhead is applied to production at $4 per cake. Keisha purchased the oven using the startup 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 the month-end. The supplier was paid at the month-end.

Required: Document K&J Bakery Inc January transactions using journal entries (round all calculations to 2 decimal places). All other costs, such as utilities must be accounted for in the journal entries (assume such transactions where applicable, are paid in cash).

Reporting (Assignment 4)

Since Keisha was not paying much attention to the discussion on journal entries in her one accounting class, she does not understand the T-accounts that you provided. However, she heard through her accountant that there is a manufacturing report that would provide her with the same information as the T-accounts and is more user-friendly. She believes that the report is called the Statement of Cost of Goods Manufactured.

Required: Prepare the Statement of Cost of Goods Manufactured for January. Also, prepare an Income Statement for the month of January.

Breakeven Analysis/Target Sales (Assignment 5)

Although business was off to a good start in January, Keisha realized that she would need to be profitable in order to continue as a viable business. Keisha 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 breakeven is the point where all costs are covered by sales and profit is equal to zero. He also suggested that the company should establish monthly target profitability in order to determine the number of cakes it would need to sell to achieve this level.

Since Keisha did not know how to perform this calculation and in order to save money, she asked you to calculate the companys breakeven point and the target sales needed to achieve a monthly profit of $700.

Required: Calculate K&J Bakery Incs breakeven point in both units and sales dollars. Also, calculate the sales needed in order to achieve a monthly profit of $700.

Note: Use four decimal places in converting from total to per-unit cost. **Help! Comment section says, Need Time! Please Be More Specific! That non-specific answer has kicked this problem out of the system.**

TABLE 1: COST INFORMATION Cost Per Cake Item and Ingredients Standard Conventional oven $6,000 (depreciated over n'a 5 years on a SL basis, no salvage value) $0 (provided by the landlord) Refrigerator Baking pans, licenses Baking flour Eggs S0 (paid for by dad) S24 per 8 lb. bag S2 per dozen n/a 1lb 4 eggs s15 per 25 lb. bag Sugar 1lb. Baking soda S6 per 14 lb. box S6.50 per 4lb S8 per 2 lb Butter 1/2 lb Raisins Others (currants, diced date, nutmeg, molasses Cash Register $30 for all 4 boxcs per month $12 per month (rental for 2 years Qtr. of bottle Rum alcohol S12 per bottle /4 Utilities (includes gas S50 per month clectric and water $50 per month Mobile Phone Business Salary Keisha S500 per month person, 5 hours per Salary icces $8 per hour cake Salary Aunt $100 per month Accountant $100 per month Estimated MOH $4.00 per cake Prices are excluded from project since due to materiality and to simplify the exercise. Provided through Boost Mobile TABLE 2: COST CLASSIFICATION CHART Fixed Variable Direct Indirect Product DM DL eriod Oven Cash Register Baking pans Business License Health Inspections Rent Utilities Mobile Phone Flour Sugar Baking Soda Buller Raisons Rum Others Accountant Brianna Alexis Keisha Aunt Ellen Prices are excluded from project since due to materiality and to simplify the exercise. 1 Provided through Boost Mobile TABLE 1: COST INFORMATION Cost Per Cake Item and Ingredients Standard Conventional oven $6,000 (depreciated over n'a 5 years on a SL basis, no salvage value) $0 (provided by the landlord) Refrigerator Baking pans, licenses Baking flour Eggs S0 (paid for by dad) S24 per 8 lb. bag S2 per dozen n/a 1lb 4 eggs s15 per 25 lb. bag Sugar 1lb. Baking soda S6 per 14 lb. box S6.50 per 4lb S8 per 2 lb Butter 1/2 lb Raisins Others (currants, diced date, nutmeg, molasses Cash Register $30 for all 4 boxcs per month $12 per month (rental for 2 years Qtr. of bottle Rum alcohol S12 per bottle /4 Utilities (includes gas S50 per month clectric and water $50 per month Mobile Phone Business Salary Keisha S500 per month person, 5 hours per Salary icces $8 per hour cake Salary Aunt $100 per month Accountant $100 per month Estimated MOH $4.00 per cake Prices are excluded from project since due to materiality and to simplify the exercise. Provided through Boost Mobile TABLE 2: COST CLASSIFICATION CHART Fixed Variable Direct Indirect Product DM DL eriod Oven Cash Register Baking pans Business License Health Inspections Rent Utilities Mobile Phone Flour Sugar Baking Soda Buller Raisons Rum Others Accountant Brianna Alexis Keisha Aunt Ellen Prices are excluded from project since due to materiality and to simplify the exercise. 1 Provided through Boost Mobile