T-Accounts

CeCe's S Bakery Business Background As she sat in her Accounting II class bored while listening to the lecture on journal entries, Cece Willows could not imagine being an accountant in the future. As a young girl, she remembered sitting in the kitchen while her mom and aunts baked those delicious princess rum cakes. She remembered that the cakes sold very quickly especially at Christmas time and that people were traveling from as far away as Florida to buy them. Her mom learned to bake from her mother, and she wrote down the cake recipes in case CeCe or one of her siblings decided to follow in her footsteps. However, CeCe chose to follow in her dad's path and so she enrolled in college with plans to become an accountant. Her two older sisters where already studying to be a lawyer and a dentist CeCe 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 princess rum cakes. CeCe 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 holiday gatherings. In December 20XY CeCe followed her plans; she dropped out of college, created a business plan, and incorporated as CeCe's Bakery. CeCe planned to open her business on January 1, 20XY. 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 a national bank, agreed to provide her with marketing support for free. CeCe found the perfect location for her business. A take-out restaurant on the busy intersection of Gillette Avenue and 4h Street became available after a bitter divorce between the owners. The landlord was impressed with Cece's vision and agreed to pay for all renovations and charge her $600 per month for rent. Cost Classification (#1) Her first action plan was to list all the key products or items that she would need to start the business. Cece'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 to hire 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 Ellen would supervise Brianna and Alexis so that CeCe could focus on developing the business. CeCe's Bakery cost drivers are provided in Table 1 below. 2 4 eggs TABLE 1: COST INFORMATION Item and Ingredients Cost Standard per Cake Conventional oven $6,000 (depreciated over 60 n/a months on a SL basis No salvage value) Baking flour $24 per 8 pounds bag 1 pound Eggs $2 per dozen Sugar $15 per 25 pounds bag 1 pound Baking soda $6 per 14 pounds box Butter $6.50 per 4 pounds 1 pound Raisins $8 per 2 pounds 2 pound Other Ingredients (currants, diced date, $30 for all 4 boxes per month nutmeg, molasses) Cash Register Rent $12 per month (rental for 2 years) Rum (alcohol) bottle 14 of bottle Utilities (includes gas, electric $50 per month and water) Mobile phone (business) $50 per month Bakery Rent $600 per month Salary-Cece $500 per month Salary - nieces $8 per hour 1 person 1.5 hours per cake Salary-aunt $100 per month Salary accountant $100 per month Salary-Cece $500 per month Estimated MOH $4.00 per cake $12 per 5 Business Transactions (#3) CeCe spent the month of December talking to various suppliers in order to determine her cost structure. She added cost data to the information in Table 1. Cece's Bakery opened for business on January 1, 20XY as planned. During the month of January, the business purchased and used 200 pounds of flour, 200 pounds of sugar, 67 dozen eggs, 20 baking soda boxes, 200 pounds of butter, 100 pounds of raisins, 50 bottles of rum, and the other ingredients (one box of each for a total of four) all from one supplier on account Manufacturing overhead is applied to production at $4 per cake. CeCe purchased the oven using the startup capital and paid all salaries and wages. Her nieces (Brianna and Alexis) worked 300 hours in total for the month. January was a very good month for the bakery since it baked 200 cakes and sold all for cash. The average selling price was $50 per cake. All manufacturing overhead is closed out at month end. The supplier was paid at month end. Document CeCe's Bakery January transactions using T-accounts. All other costs shown in Table 1, such as utilities, cell phone, etc., must be accounted for in the T-accounts (assume such transactions are paid in cash unless otherwise indicated above). Cash Materials inventory Work in Process Inventory Finished Goods Inventory Manufacturing Overhead Oven Accumulated Depreciation Oven Accounts Payable Salaries and Wages Payable 7 Cece Capital Cake Sales Cost of Goods Sold Administrative Salaries Expense Cash Register Rent Expense Cell Phone Expense