Ravens Cakes, Inc. Business Background As she sat in her Cost Accounting class, bored while listening to the lecture on classifications of different costs, Judy Jones suddenly realized that she just might need accounting skills in the near future. As a young girl, she remembered sitting in the kitchen while her mom and aunts baked delicious Baltimore Ravens Cakes. She recalled that the cakes sold very quickly, especially at Christmastime, and that people had traveled from as far away as San Francisco, California to buy them. Her mom learned to bake from her own mother, and she'd written down the cake recipes in case Judy or one of her siblings decided to follow in her footsteps. However, Judy chose to follow in her dad's path and enrolled in college with plans to become an accountant. Her two older sisters were already studying to be a lawyer and a dentist. Judy 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 Baltimore Ravens Cakes. Judy anticipated that most of her business would be based on special order, customized cakes. She anticipated selling cakes for family weekend gatherings, birthday and wedding celebrations, and football gatherings. She wanted to have a few cakes available in a store to appeal to the drop-in customer. In December 20x0 Judy put her plan into action, she dropped out of college, created a business plan, and incorporated as Ravens Cakes, Inc. Judy 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 minimal salary of $500 per month for the first year of business. Uncle David, a marketing executive with M&T Bank, agreed to provide her with marketing support pro-bono. Judy found the perfect location for her business. A take-out restaurant on the busy intersection of Pratt and Aliceanna Streets in Baltimore, MD, became available after a bitter divorce between the owners. The landlord was impressed with Judy's vision and agreed to pay for all renovations and to charge her $600 per month for rent. Cost Classification (Assignment #1) Her first action plan was to list all key products or items that she would need to start the business. Judy's 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 Judy could focus on developing the business. Ravens Cakes' costs are provided in Table 1 (page 9) Required: Judy 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. a) Behavior (fixed or variable) b) Traceability (direct or indirect) c) Financial reporting (product or period) d) If a product cost, identify which items are direct materials, direct labor or manufacturing overhead
