S&S Bakery, Inc. A Simplified Management Accounting Project Business Background Rich watched his mom making cakes for the Jewish holidays since he was a kid. He even faked being sick so he could stay home and smell the delicious aroma of cinnamon, brown sugar and the yeast dough as it came out of the oven. Lots of people in the neighborhood came over before the holidays to put in their orders. Mom had learned from her mom and had all the recipes written on 3 x 5 index cards in case Rich or his brother wanted them. Rich's dad encouraged him to become an accountant because a profession would provide a solid income and career opportunities. The problem is, he hated Accounting. Well, maybe hate is too strong a word, but it wasn't what he enjoyed doing. He was a cook. One day in Managerial Accounting class, Rich made a decision. He was going to quit school at the end of the semester and open up a bakery specializing in his mom's cakes. He anticipated that most of his business would be based on special order, customized cakes. He figured he could service family weekend gatherings, birthday and weddings celebrations, and, of course, the Jewish New Year celebrations. Although most of the baking would be to order, he would maintain a limited inventory for drop in customers. In December of 2016, he left school, created a business plan, and incorporated S & S Bakery. The plan was to open for business on January 1, 2017. He would use the $50,000 his dad left him when he passed away two years earlier as start up capital and pay himself a minimum salary of $500 month for the first year. His friend Maria, a marketing executive with her own firm, agreed to provide marketing support for a cake a year. He found a location in Valencia close to a well known Hebrew school. The storefront was on Copperhill Drive, a busy street with a Starbucks and several restaurants. The landlord was impressed with his initiative and agreed to pay for all the leasehold improvements and charge $600 a month. Rich doesn't want to see journal entries and T-accounts. However, he is interested in seeing a Statement of Cost of Goods Manufactured. He thinks a business owner should see the information that way. Required: Prepare the Statement of Cost of Goods Manufactures for January. Also, prepare an Income statement for the month of January. TABLE #1: COST INFORMATION ITEM AND INGREDIENTS Conventional Oven Refrigerator Baking pans, licenses Baking flour Eggs Sugar Baking soda Butter Raisins Others (cinnamon, yeast, walnuts) Cash register COST STANDARD PER CAKE $6,000 (depreciated over 5 n/a years on a SL basis - No salvage) $0 (provided by landlord) $0 (paid by dad) $24 per 8 lb. bag 1 pound $2 dozen 4 eggs $15 per 25 lb. bag 1 lb. $6 per 14 lb. box $6.50 per 4 lb. 1 lb. $8 per 2 lbs. 1 lb. $30 for all 3 boxes per month $12 per month (rental for 2 years) $50 month Utilities (includes gas, electric, and water) Mobile phone (business) Salary Rich Wages Michelle/Jen Salary Fern Accountant Estimated MOH 1 person - 1.5 hours $50 month $500 month $8 hr. $100 month $100 month $4 per cake Statement of Cost of Goods Manufactured For the month ended 1/31/2017 Direct Materials Raw Materials Add: Purchases of Raw materials Raw Materials Available for use Deduct Ending raw Materials Raw Materials used in production Direct Labor Manufacturing Overhead Total Manufacturing Cost Add: Beginning WIP Deduct: Ending WIP Cost of goods Manufactured Income Statement For the month ended 1/31/2017 Sales COGS Gross Margin Expenses: Cash register Salary Expense Phone Expense Acct expense Total Expenses Net Income S&S Bakery, Inc. A Simplified Management Accounting Project Business Background Rich watched his mom making cakes for the Jewish holidays since he was a kid. He even faked being sick so he could stay home and smell the delicious aroma of cinnamon, brown sugar and the yeast dough as it came out of the oven. Lots of people in the neighborhood came over before the holidays to put in their orders. Mom had learned from her mom and had all the recipes written on 3 x 5 index cards in case Rich or his brother wanted them. Rich's dad encouraged him to become an accountant because a profession would provide a solid income and career opportunities. The problem is, he hated Accounting. Well, maybe hate is too strong a word, but it wasn't what he enjoyed doing. He was a cook. One day in Managerial Accounting class, Rich made a decision. He was going to quit school at the end of the semester and open up a bakery specializing in his mom's cakes. He anticipated that most of his business would be based on special order, customized cakes. He figured he could service family weekend gatherings, birthday and weddings celebrations, and, of course, the Jewish New Year celebrations. Although most of the baking would be to order, he would maintain a limited inventory for drop in customers. In December of 2016, he left school, created a business plan, and incorporated S & S Bakery. The plan was to open for business on January 1, 2017. He would use the $50,000 his dad left him when he passed away two years earlier as start up capital and pay himself a minimum salary of $500 month for the first year. His friend Maria, a marketing executive with her own firm, agreed to provide marketing support for a cake a year. He found a location in Valencia close to a well known Hebrew school. The storefront was on Copperhill Drive, a busy street with a Starbucks and several restaurants. The landlord was impressed with his initiative and agreed to pay for all the leasehold improvements and charge $600 a month. Rich doesn't want to see journal entries and T-accounts. However, he is interested in seeing a Statement of Cost of Goods Manufactured. He thinks a business owner should see the information that way. Required: Prepare the Statement of Cost of Goods Manufactures for January. Also, prepare an Income statement for the month of January. TABLE #1: COST INFORMATION ITEM AND INGREDIENTS Conventional Oven Refrigerator Baking pans, licenses Baking flour Eggs Sugar Baking soda Butter Raisins Others (cinnamon, yeast, walnuts) Cash register COST STANDARD PER CAKE $6,000 (depreciated over 5 n/a years on a SL basis - No salvage) $0 (provided by landlord) $0 (paid by dad) $24 per 8 lb. bag 1 pound $2 dozen 4 eggs $15 per 25 lb. bag 1 lb. $6 per 14 lb. box $6.50 per 4 lb. 1 lb. $8 per 2 lbs. 1 lb. $30 for all 3 boxes per month $12 per month (rental for 2 years) $50 month Utilities (includes gas, electric, and water) Mobile phone (business) Salary Rich Wages Michelle/Jen Salary Fern Accountant Estimated MOH 1 person - 1.5 hours $50 month $500 month $8 hr. $100 month $100 month $4 per cake Statement of Cost of Goods Manufactured For the month ended 1/31/2017 Direct Materials Raw Materials Add: Purchases of Raw materials Raw Materials Available for use Deduct Ending raw Materials Raw Materials used in production Direct Labor Manufacturing Overhead Total Manufacturing Cost Add: Beginning WIP Deduct: Ending WIP Cost of goods Manufactured Income Statement For the month ended 1/31/2017 Sales COGS Gross Margin Expenses: Cash register Salary Expense Phone Expense Acct expense Total Expenses Net Income