Provide an explanation for each cost that will help them understand how the cost process works and provide an example for each product cost as it relates to Donuts To Go's production of donuts.

 "Donuts To Go" has employed you as their financial controller. This company produces donuts that are identical to those made by another donut shop, their offerings include: Rings (Glazed, strawberry, chocolate, blueberry cake)

Filled Shells & Bars (Powdered lemon, Bavarian creme filled chocolate, strawberry, and more)

Specialty (fritters, cinnamon rolls)

Pastries (Turnovers & Danish)

Bites (Multiple flavors doughnut holes, lemon bites, and other favorites packed in cups)

Seasonal (Holiday favorites)

The following questions are the ones they have requested you to clarify to them on the first day: 1. What are the three basic product costs associated with producing the donuts? *Hint (Direct Materials, Direct Labor, Manufacturing Overhead)

3. Overhead is one of those basic product costs - Describe the 3 components of overhead and give an example for each one as it relates to Donuts To Go.

*Hint - (1) Three Basic Product Costs Related to Making Donuts for Donuts To Go:

Direct Materials: This includes all the raw materials that go directly into the production of donuts for Donuts To Go, such as flour, sugar, yeast, and any flavorings or toppings. For instance, if Donuts To Go uses 2 pounds of flour for a batch of donuts and the cost is $0.50 per pound, the direct material cost for flour would be $1.00 for that batch.

Direct Labor: This cost involves the wages and related expenses for the employees who are directly involved in making the donuts at Donuts To Go. For example, if an employee is paid $15 an hour and spends 2 hours making a batch of donuts, the direct labor cost for that batch is $30.

Manufacturing Overhead: This encompasses all the costs associated with production that are not directly traceable to the product at Donuts To Go. It involves a range of indirect costs such as utilities, rent for the production space, and maintenance of equipment. For instance, the cost of electricity to run the donut-making machines is part of the overhead.

*Hint - (2) Explanation and Examples for Each Cost:

Direct Materials: For Donuts To Go, direct materials are the tangible ingredients that go into the final product. These costs vary with production quantity. More donuts mean increased costs for ingredients like flour and sugar.

Direct Labor: Direct labor costs at Donuts To Go are the wages for employees who are directly involved in producing the donuts, including salaries, overtime, and benefits. If an employee spends 3 hours preparing and frying donuts, their labor costs are directly tied to the production process.

Manufacturing Overhead: Overhead costs at Donuts To Go are not directly traceable to donut production but are necessary for the process. This includes costs like machinery depreciation, kitchen rent, and utilities. Cleaning supplies used in the kitchen are considered overhead, essential for production but not incorporated into the donuts.

*Hint - (3) Three Components of Overhead and Examples:

Indirect Materials: For Donuts To Go, indirect materials include items like lubricants and cleaning supplies for the donut-making machines, essential for equipment maintenance but not directly part of the donuts.

Indirect Labor: Indirect labor at Donuts To Go includes employees whose work supports production but is not directly traceable to a specific product, like the salary of the production manager or maintenance staff.

Overhead Costs: The last category of manufacturing overhead is the overhead itself. At Donuts To Go, other overhead costs include utilities, equipment depreciation, and rent for the production space. These are necessary for production but not directly assigned to a single donut or batch. For example, the monthly rent for the space where the donuts are made is part of overhead, as is the cost for the lights and heat in the production area.

Question 2. Baker Bob, the Chief Executive Officer of Donuts To Go, inquires about the impact of the Planning Budget and the Flexible Budget on the Standard Costs and Variance Analysis approach, which he wants you to use as the financial controller. Explain to CEO Bob the benefits that the company would get from using the Standard Costing and Variance Analysis techniques.

Question 3. Bob the Baker, the Chief Executive Officer of Donuts To Go, has become aware of a strategic business tool called a Balanced Scorecard (BSC) that has the potential to enhance operational efficiency. Given Baker Bob's lack of understanding, it is crucial to provide a clear and comprehensive explanation of the Balanced Scorecard and its potential benefits for Donuts To Go. It is important to convince 'sell' the idea to the CEO about the benefits of using a Balanced Scorecard (BSC) since he only prioritizes activities that contribute to the company's value.