Overview Successful entrepreneurs understand all aspects of business, especially costs and costing systems. In the course project, you will assume the role of the owner of a small business and apply managerial accounting principles to evaluate and manage costs related to your services within a costing system. In the first milestone of the project, you will determine and classify the costs necessary for opening your business. Scenario You plan to open a business manufacturing collars, leashes, and harnesses for pets. To begin, you will manufacture these in a standard style and size with plans to expand your range over the year. In a few weeks, you will present your company's financial strategy to some key investors. To begin creating your strategy, you need to consider and record all the costs associated with operating your business. You have decided to use the job order costing system. Prompt Use the given operational costs in the Milestone One Operational Costs Data Appendix Word Document to complete the first two tabs, "Cost Classification" and "Variable and Fixed Costs," in the Project Workbook Spreadsheet. Specifically, you must address the following rubric criteria: Cost Classification. Accurately classify all your costs in the "Cost Classification" tab of your workbook. Identify direct material, direct labor, overhead, and period costs. (Note: Fixed and variable costs have been classified for you.) Variable and Fixed Costs. Complete the "Variable and Fixed Costs" tab of your workbook. (Note: Some costs are provided for you. Fill in only the missing costs.) Determine your total variable cost per unit and the total fixed costs for each product. Show your work using calculations to the side of the table or using appropriate formulas in the table. Guidelines for Submission Submit the Project Workbook with the "Cost Classification" and "Fixed and Variable Costs" tabs completed. This file should be completed and submitted using Microsoft Excel You plan to open a small business for manufacturing pet collars, leashes, and harnesses. You have found a workshop space you can use for sewing your products. After some research and planning, you have estimates for the various operating costs for your business. The total square footage for the sewing rooms is 1,500 square feet broken into three areas (500 square feet each). You have taken out a loan for start-up costs, and the monthly payment is $550; it goes into effect immediately and should be accounted for in your costs. You will also collect a modest salary for the first year of $500 per month; remember to divide evenly among the services. Salary and Hiring Data One collar maker, who will be paid $16.00 per hour and work 40 hours per week One leash maker, who will be paid $16.00 per hour and work 40 hours per week One harness maker, who will be paid $17.00 per hour and work 40 hours per week One receptionist, who will be paid $15.00 per hour and work 30 hours per week Other Costs Rent: $750 per month; allocate based on square footage High-tensile strength nylon webbing-$12 per yard of webbing 3 collars per yard of webbing o 2 leashes per yard of webbing o 2 harnesses per yard of webbing Polyesterylon ribbons-$9 per yard of ribbon 3 collars per yard of webbing o 2 leashes per yard of webbing o 2 harnesses per yard of webbing Buckles made of cast hardware-$0.50 per buckle 4 buckles used per collar 3 buckles used per leash o 8 buckles used per harness 3 industrial sewing machines at $3,300 each for a total of $9,900; depreciation is $165 per month (5- year life) Utilities and insurance: $600 per month; allocate based on square footage Scissors, thread, cording: $1,200 Price tags: $250 for 2,500 ($0.10 each) Office supplies: $2,400 or $200 per month Other business equipment: $2,000 Loan payment of $550 per month Salary drawn of $500 per month . . . Milestone One - Cost Classification INSTRUCTIONS: Putting an X in the appropriate spot, classify the costs as: Direct Material, Direct Labor, Overhead, or Period Costs. The Fixed and Variable cost classifications have been provided for you. Direct Material Direct Labor Overhead Period Costs Fixed Variable Item/Cost Salary - Collar maker Salary - Leash maker Salary - Harness maker Salary - Receptionist High-tensile strength nylon webbing Polyesterylon ribbons Buckles made of cast hardware Depreciation on sewing machines Rent Utilities and insurance Scissors, thread, and cording Price tags Office supplies Oter business equipment Loan payment Salary to self XXXX X Collars Item Variable Cost/Item High-tensile strength nylon webbing $ 4.00 Polyesterylon ribbons Buckles made of cast hardware Price tags Fixed Costs 2,773.33 $ Item Collar maker's salary (monthly Depreciation on sewing machines Rent Utilities and insurance Scissors, thread, and cording loan payment Salary to self $ $ 183.33 166.67 Total Variable costs per Collar Total Fixed Costs Leashes Item Variable Cost/Item Item Fixed Costs High-tensile strength nylon webbing Polyesterylon ribbons Buckles made of cast hardware Price tags Leash maker's salary (monthly) Depreciation on sewing machines Rent Utilities and insurance Scissors, thread, and cording Loan payment Salary to self Total Variable Costs per Leash Total Fixed Costs Variable Cost/Item Fixed Costs Harnesses item High-tensile strength nylon webbing Polyesterylon ribbons Buckles made of cast hardware Price tags Item Harness maker's salary Depreciation on sewing machines Rent Utilities and insurance Scissors, thread, and cording Loan Salary to self Total Variable costs per Harness Total Fixed Costs COLLARS LEASHES HARNESSES Sales Price per Unit Variable Cost per Unit Contribution Margin Milestone Two - Break-Even Arlalysis COLLARS LEASHES HARNESSES Sales Price $ $ Fixed Costs $ $ Contribution Margin $ $ $ Break-Even Units (round up) Target Profit $ 300.00 $ 400.00 $ 500.00 Break-Even Units (round up) Target Profit $ 500.00 $ 600.00 650.00 Break-Even Units (round up) Milestone Three - Income Statement $ Revenue: Collars Leashes Harnesses $ Total Revenue: Cost of goods sold Gross profit $ $ Expenses: General and administrative salaries Depreciation Rent Utilities and insurance Scissors, thread, and cording Loan Total Expenses $ Net Income/Loss $ Milestone Three - Variance Analysis Data for Variance Analysis: Budgeted (Standard) Hours/Qty Budgeted (Standard) Rate Actual Hours/Qty Actual Rate Labor Materials Variances for Collar Sales Favorable/ Unfavorable Variance Direct Labor Time Variance (Actual Hours - Standard Hours) x Standard Rate $ Direct Labor Rate Variance (Actual Rate - Standard Rate) x Actual Hours $ Direct Materials Quantity/Efficiency Variance (Actual Quantity - Standard Quantity) x Standard Price $ Direct Materials Price Variance (Actual Price - Standard Price) x Actual Quantity At the end of the first month of opening your business, you calculate the actual operating costs of the business and the income you earned. You also notice and document the difference in what you budgeted for certain materials and labor against the actual amounts you spent on the same. For your statement of cost of goods sold, use the following data regarding the actual costs incurred by the business over the past month: Materials purchased: $20,000 o Consumed 80% of the purchased materials Direct labor: $8,49333 Overhead costs: $3,765 Note: Assume that the beginning materials and ending work in process are zero for the month Use the following revenue and cost information for the income statement. Note that the revenue you use will depend on the pricing level options you chose in Milestone Two. Also, assume that after accounting for weekends and other holidays, there were 20 business days in the first month of operation. For example, if you chose a sales price of $20 per collar, the actual number of collars sold in the month was 33 per day or 33 x 20 = 660 per month Established Sales Price Number of items Sold per Day Collars 33 $24 28 $28 Leashes $22 $26 $30 Harnesses $25 25 $30 22 $35 $20 23 28 23 18 20 The other costs incurred by the business include: . General and administrative salaries Receptionist: $1,950 Owner salary: $500 Depreciation: $165 Rent: $750 Utilities and insurance: $600 Scissors, thread, and cording $1,200 Loan repayment: $550 Variance At the end of the month, you find that the labor and materials spent on manufacturing collars was different from what you estimated: The collar maker had to work ning hours a day instead of eight due to an increased demand for collars. . Because of the increased demand, the hourly rate you paid your employee for making the collars increased to $16.50 An increase in the cost of raw material led the direct material cost per colar to increase to $10 However, you also made and sold 60 more collars than you expected to sell in the month You now need to determine the variance in the materials and labor cost from what you estimated in Milestone Two based on the market research data