Please kindly bear with me, questions are short it's only a lengthy scenario case study that always comes with Management Accounting ??

Administration Salaries: Includes taxes and benefits for the Operations Manager, the Financial Controller, Human Resources Manager and two administrative support people. Supplies: Includes supplies relating to production, packaging and decorating, sanitation and warehouse (think: adhesive, pastry bags, spatulas, scrapers, icing pens, gloves and so on). Freight & Shipping-In: The costs of shipping raw ingredients and other materials to the factory from suppliers. Freight & Shipping-Out: The costs of shipping finished products to customer locations and distribution centres. Electricity: Approximately 10% for administrative office and the remainder for the factory. The factory portion varies somewhat with production volume. Gas (ovens): Approximately 5% for administrative office and the remainder for the factory. The factory portion varies somewhat with production volume. Water: All for the factory and varies proportionately with production volume. Repairs & Maintenance: All for the factory. Rent expense: The factory uses about 85% of the 60,000m of the factory building and the remainder is for the administrative office. Telephone & Internet: All for the administrative office. Co-owners' salary: Linda Kumalo and Taylor Dlamini. Brokers' commissions: Generally 4% of sales. Income Tax: Average total tax rate is 32%.CASE STUDY - BACKGROUND INFORMATION AND REQUIRED All characters and company information and names in this case document are fictitious. Any resemblance to real persons, living or dead, or companies is purely coincidental. Stage One A history of Pieman's Fancy Pieman's Fancy (Pty) Ltd is the genius of childhood neighbours and best friends Linda Kumalo and Taylor Dlamini. Though almost inseparable through high school, the two parted ways after graduation-Linda heading abroad to study the art of pastry making in some of the most elite patisseries in Paris, and Taylor pursuing his love of food (especially bacon) by landing jobs in some of the finest restaurants in Johannesburg. A chance encounter back in 2016 reunited the two and got them talking of their mutual love of food and what they'd been learning. Soon they were spending their free time crafting quirky but sophisticated (not to mention delicious) pies-passing them out to friends and family and building a grassroots fan base around town. When the operation outgrew the Kumalo family kitchen, Linda and Taylor applied for a small business loan. With it, they bought a small pie factory in Linbro Park and became the proud owners of a 60,000m' factory where they now produce high-quality pies. A couple years ago, as demand for the pies grew to a national market (thanks to the company's Instagram account), the co-owners hired a new Financial Controller, a recently qualified CA (SA) to help them continue to grow and stay profitable. Now they just landed their largest supermarket chain store yet. In 2019, the company had R6.1 million in sales revenue and is on track to do R9.3 million this year. Pieman's Fancy uses natural and organic ingredients and combines Linda's Parisian techniques with Taylor's unexpected takes on classical southern desserts like Bacon Chocolate Chess, Avocado Key Lime and Chai Apple Pie. It offers three main product lines: . Singles, as the name suggests, are a single serving, ready to eat on a plate. 20 cm pies are pre-sliced and sold to distributors for food service providers or supermarket in-store bakeries. 25 cm pies are packed in strong, clear plastic domes to be sold in refrigerated cases and with custom labels. The pies are available as a variety pack, a duo-pack (two different flavours) or a full pie. Linda and Taylor love getting feedback from their fans and are always testing new recipes based on suggestions or suppliers' needs. They often receive requests from food chains for different types and sizes of pies and must decide which ones to accept and which ones to pass on. Pie production Naturally, Linda and Taylor can't reveal their recipes, but they have provided some details on how the pies are made. Most pies go through a general four-step process: mixing, filling, baking and packaging. Pieman's Fancy makes five different crusts mixed in large batches, and fillings are produced in smaller batches depending on the production schedule. Next, crusts are filled with, well, the filling and placed on trays for baking (15 to 25 at a time depending on size). After they've cooled for an hour, pies are decorated, sliced, packaged and labelled and placed on pallets to freeze until shipped. It takes about a week to complete a pie product order and the plant uses just-in-time production methods. The goal is to produce a pie every five seconds.Since contaminated food would lead to a visit by the Department of Health (and possibly shutting down the factory), there are at least three sanitation workers on duty at all times. Generally, there are 3-4 warehouse workers on duty to handle the shipping, receiving and storage of raw materials and finished product. The factory typically runs two shifts per day with two production supervisors assigned to each shift. For each of the three product lines, the process is virtually the same regardless of the flavours or ingredients. But the processes between the product lines can be very different (e.g., packaging for variety packs takes much longer than for whole pies because workers need to pull different flavour slices and place them on the same tray). Not to mention the packaging varies-some go in boxes while others go in plastic containers, and some package tops and labels take longer to place than others. Pieman's Fancy seldom places its own labels and logo on any of their products. Label designs generally come from the customer, so they vary based on each order. The plant currently has capacity to do R1 million in sales per month, but with additional investments in ovens, mixers and workstations (for about R500,000) it could increase to R1.5 million. October through December tends to be a higher volume period (with increased demand for holidays like Christmas and New Year's), resulting in Pieman's Fancy getting roughly 60% of its business during that time period. Because of the rush, the plant runs overtime and weekend shifts as needed to get the product to its suppliers. The owners believe the labelling process significantly slows down production time. Reports Pieman's Fancy managers rely heavily on a "Labour Report" to manage its work force. The report lists eight salaried workers and approximately 50 hourly employees, expected number of work days for the month, hours per day (typically 8) and total projected hours for the month. The hours are multiplied by the employee pay rate (from R8.50-R12.50 per hour) to get expected monthly gross pay amount for each hourly employee based on a 40-hour work week. The sum of all expected hourly employee gross monthly pay amounts are added to the salaried production workers gross monthly pay and the projected total payroll added costs (PAYE, SDL, UIF etc.) to get "total labour Rands" cost for the month. The total labour Rands are divided by projected sales revenues to get a "projected labour percentage." Management watches this number closely and tries to keep it around 20% of sales. In the past, it was assumed that labour costs for the company did not change with sales volume, and some months were profitable and some were not. Currently, Pieman's Fancy managers adjust labour hours up or down depending on the demand for pies and try to keep the projected labour near 20% of sales. Costing Issues Linda and Taylor are skilled at determining the cost of ingredients, but when it comes to labour and the overhead of each product line, they're not sure where to start. At the moment, Pieman's Fancy allocates the same amount of overhead costs to every output unit. While total labour averages 20%, they believe that labour and overhead costs vary greatly by product. And, since the company does not currently track labour hours by product, Linda and Taylor have no idea of labour cost or profitability by product line. A digital biometric time clock keeps track of hours for the employees, but management is open to asking shift workers to track their hours by job or batch. Taylor and Linda's primary concern is making sure there is a good reason to change the method and that there's a simple and low-cost way to track it. The company has a small but growing administrative staff that can do some basic record keeping while the Financial Controller manages financial reporting, taxes and decision analysis, a skill she developedUse the following as a guide when making your recommendations: 1. Assess performance for Pete's Steakhouse in terms of expected return on investment (ROI) and residual income. What were the major factors that contributed to the difference between profits from 2018 to 2019? What does this analysis suggest for Pieman's Fancy 2. Assess the viability and profitability for the Newtown factory including its expected ROI and residual income. What does this analysis suggest for Pieman's Fancy? 3. Comment on the strategic, technical, behavioural and risk factors that are relevant to this decision. What does this analysis suggest for Pieman's Fancy? 4. What action do you recommend for Pieman's Fancy at this time?Option 2 The second option is to purchase and operate a factory in Newtown, Johannesburg which would double Pieman's Fancy current production volume. There is an existing food production facility in Newtown in a location that is well positioned on distribution routes and provides proximity to a whole new market of restaurants and supermarket chains. The asking price for the factory is R7.5 million and includes existing equipment. About half the machinery could be used by Pieman's Fancy but would also require an investment of R2.5 million in additional equipment with a 10-year average life to provide the same capacity as the current factory. It would take about six months to get the new plant up and running. Estimated sales for the first three years after it opens are R4 million, R6 million and R10 million, respectively. Variable expenses are expected to have about the same behaviour and relationship to sales as the current facility. Fixed expenses would be about the same amount per month as the current factory.while working toward her CA (SA) designation. The Financial Controller has asked for help determining a product costing system Pieman's Fancy can use for pricing decisions, product line profitability analysis, financial planning and helping managers understand the business. But costs are only one component. The company currently bases pricing decisions on the "three C's"; cost, consumer and competition. As a bare minimum, the company wants to achieve a target 17% gross profit margin (or higher) on cost, but Linda and Taylor consider what a consumer is willing to pay the most important factor in pricing. They want to be sure to keep Pieman's Fancy competitive with other companies. Table 1 provides selected actual cost and revenue data for May 2019. Additional information about costs can be found in the Notes to Selected Financial Data below. Table 1: Selected Financial Data (actual cost and revenue data for May 2019) Cost Category Product cost Period cost Sales R766 667 Expenses Raw materials Variable R327 934 Bakery labour Mixed R158 767 Administration salaries Fixed R41 367 Supplies Variable R3 83 Freight & shipping-in Variable R4 907 Freight & shipping-out Variable R64 707 Electricity Variable R9 813 Gas (ovens) Variable R3 067 Water Variable 8920 Repairs and maintenance Fixed R4 293 Ren Fixed R19 167 Telephone & internet Fixed R2 300 Co-owner's salaries Fixed R25 300 Broker's commission Variable R30 667 Total expenses R655 675 Operating profit R69 625 Tax (R22 280) Net operating income after tax R47 345 Unit volume 64 500 Average operating assets R 5 500 000 Minimum rate of return 8% Notes to Selected Financial Data Raw Materials: Includes main ingredients and flavour additives. Main ingredients are relatively higher cost items such as flour, sugar, eggs, nuts and fruit that appear on the package label. Flavour additives are relatively low-rand cost items and a small part of the weight of the pie such as spices, dyes, salt, and certain oils that don't always appear on the package label. Bakery labour: The cost amount consists of 22% supervisory salaries and taxes and the rest hourly workers. Bakery labour workers are organized into four categories: production line (mixing, filling and baking), packaging, sanitation and warehouse (all included as part of cost of goods sold).PART 3 The Pieman's Fancy management team was once again impressed with your team's recommendations on the investment opportunities. For various reasons, the company decided to invest in the new labelling machine and not pursue the national fast food chain RFP. However, since receiving your recommendations, the company has been conducting strategic planning discussions on the future of Pieman's Fancy and is considering two major acquisitions. Option 1 Purchase Pete's Steakhouse. Up to now, Pieman's Fancy has focused on selling pies as a wholesaler to restaurants and supermarket chains. Linda and Taylor were approached by the chain's management group about whether they would be interested in buying their five underperforming restaurants and operate them under the "L&T's Steakhouse" name. Pete's Steakhouse is known for its excellent steak dinners and service but has struggled to expand its menu to compete with the many dining options available to consumers. The key idea with this acquisition is that adding Pieman's Fancy outstanding dessert offerings would make the new restaurant an appealing destination for both dinner and dessert. To help prepare for the upcoming initial negotiations, Linda and Taylor have asked you to review the 2019 performance report for the chain (see Table 2). It is estimated that average price per meal would increase 12% with the new desserts and require an investment of R10 million. Table 2: Pete's Steakhouse 2018-2019 Performance Report 2019 Actual 2018 Actual Customer volume R1 066 000 R1 105 000 Net sales R10 523 440 R10 508 520 Cost of sales R7 335 366 R7 363 252 Food R 6340 206 R6 362 722 Labour R995 160 R1 000 480 Gross profit R3 188 074 R3 145 268 Other operating expenses R2 270 665 R 2 222 835 Operating profit R917 409 R922 433 Other data Average operating assets R7 500 000 R7 500 000 Food costs: % variable 100% 100% Labour costs: % variable 70% 70% Other operating expenses: % variable 60% 60%