You are a consultant for Sweet Bites Cakes. Prepare and provide a proposal recommending which type of costing approach will help the company determine more accurate cost information for pricing and product decisions. Sweet Bites Cakes $($a fictional company$)$ began operations in $2015$ and uses natural and organic ingredients and unique

flavor combinations in its product line. Bacon Bourbon Spice Cake, Chai Tea Cake, and Key Lime Avocado Cake are just

a few of the cake flavors that the company sells.

Sweet Bites offers three main product lines:

$$ Singles, which are single$-$serving slices of cake that are ready to eat on a plate

$$ Six$-$inch cakes, which are pre$-$sliced and sold to distributors for food service applications or in grocery store

bakeries

$$ Ten$-$inch cakes, which must be sold in refrigerated cases with custom labels. The cakes are available in a variety

pack, in a duo$-$pack $($two different flavors$),$ or as a full cake.

By $2017,$ the demand for Sweet Bites Cakes grew to a national market thanks to the company$$s Instagram and Facebook

accounts. This year, the company landed a large grocery chain contract. In $2017,$ the company had $$6\mathrm{.}1$ million in sales

revenue and is on track to do $$9\mathrm{.}3$ million in sales this year.

The plant currently has the capacity to do $$1$ million in sales per month, but with an additional investment of $$500,000$ in

ovens, mixers, and workstations, Sweet Bites Cakes could increase capacity to $$1\mathrm{.}5$ million. The months of October

through December tend to yield higher sales volume as a result of the holidays. Sweet Bites realizes roughly $60\%$ of its

business during this period.

Sweet Bites employs eight salaried workers and $50$ hourly employees. The employee pay rate is from $$12\mathrm{.}50$ to $$16\mathrm{.}50$

per hour for $8$ hours per day. Sweet Bites determines its labor costs based on $8$ hours per day, the expected number of

workdays per month, and the total projected hours for the month. The hours are multiplied by the total projected hours for

the month to determine the expected monthly gross pay amount for each hourly employee based on a $40-$hour workweek.

The sum of the expected hourly employee gross monthly pay is added to the salaried production worker$$s gross monthly

pay, and the projected total payroll$-$added costs such as Social Security, employer taxes, etc., comprise the total labor

dollars for the month. Sweet Bites likes to keep this number as close to $20\%$ of sales as possible and adjusts labor hours

accordingly.

The company bases pricing decisions on cost$,$ consumrs, and competition. It wants to achieve a target $17\%$ gross profit

margin $($or higher$)$ on cost with pricing being the most important factor. The following table provides selected actual cost and revenue date for May $2019.$ Raw Materials: Includes main ingredients and flavor additives. Main ingredients are relatively higher$-$cost items such as

flour, sugar, eggs, nuts, and fruit that appear on the package label. Flavor additives are relatively low$-$dollar cost items and

a small part of the weight of the cake such as spices, dyes, salt, and certain oils that don$$t always appear on the package

label.

Bakery Labor: The cost amount consists of $22\%$ supervisory salaries and taxes, and the rest are hourly workers. Bakery

labor 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$).$

Administration Salaries: Include taxes and benefits for the Vice President of Operations, Controller, Human Resource

Manager, and two administrative support people.

Supplies: Includes supplies relating to production, packaging and decorating, sanitation, and warehouse.

Freight & Shipping $$ In: The cost 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 centers.

Utilities $$ Electricity: Approximately $10\%$ for administrative office and the remainder for the factory. The factory portion

varies somewhat with production volume.

Utilities $$ Gas: Approximately $5\%$ for administrative office and the remainder for the factory. The factory portion varies

somewhat with production volume.

Utilities $$ 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 total square footage of the building, and the remainder is for the

administrative office.

Telephone & Internet: All for the administrative office.

Co$-$Owners$$ Salary: Two owners.

Broker$$s Commissions: Generally $4\%$ of sales.

Income Tax: Average total tax rate is $32\%.$