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. Operational Costs Data Appendix

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\mathrm{.}00$ per hour and work $40$ hours per week

One leash maker, who will be paid $$16\mathrm{.}00$ per hour and work $40$ hours per week

One harness maker, who will be paid $$17\mathrm{.}00$ per hour and work $40$ hours per week

One receptionist, who will be paid $$15\mathrm{.}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

$2$ leashes per yard of webbing

$2$ harnesses per yard of webbing

Polyester$/$nylon ribbons$-$ $$9$ per yard of ribbon

$3$ collars per yard of ribbon

$2$ leashes per yard of ribbon

$2$ harnesses per yard of ribbon

Buckles made of cast hardware $-$$$$0\mathrm{.}50$ per buckle

$4$ buckles used per collar

$3$ buckles used per leash

$8$ 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, zero salvage value$)$

Utilities and insurance: $$600$ per month; allocate based on square footage

Scissors, thread, cording: $$1,200$

Price tags: $$250$ for $2,500($ $$0\mathrm{.}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 monthMilestone One $-$ Cost Classification

Milestone One $-$ Variable and Fixed Costs

Collars

Leashes

Item

Fixed Costs

Harnesses

Item

$/$ariable Cost$/$Item

High$-$tensile strength nylon webbing

Polyester$/$nylon 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