Aunt Connie??™s Cookies Simulation
University of Phoenix
aunt connie??™s cookies
The Aunt Connie??™s Cookie Simulation focuses on the production of two types of her cookies; real mint and lemon creme. The company, Connie??™s Cookies was founded in 1986 after Connie??™s friend Maria Villanueva exclaimed that her cookies were so tasteful. Maria convinced Connie that with her wonderful cookie recipes as well as her business acumen and pastry making skills, that she should go into business for herself. Connie not only took Maria??™s advice but she also made her the Chief Executive Officer of the family-owned business (University of Phoenix, 2002). Now that Maria is over production, there are important decisions that she has to make in order to bring in higher profits at lower costs, such as; bulk ordering of real mint cookies, the strain of meeting the demands of the consumer, competitor buy out. The prices for both the lemon creme and real mint cookies have increased but that has created a slump in sales and an inevitable decrease of volume of cookies. However, her real mint cookies continue to bring in a greater profit stream than the lemon creme cookies.
A confectioner from Atlanta has approached Aunt Connie??™s Cookies with a bulk order for one million packs of real mint cookies – to be manufactured in one month??™s time. One issue however, is that the confectioner will only purchase the cookies at $1.20 per pack rather than the mass market selling price of $1.50 per pack – or nothing at all. An additional issue with this order will be that the company will have to decrease the production volume of their lemon creme cookies which will make the total contribution margin far less than the unit contribution margin of the real mint cookies. The main idea here is to maximize the company??™s operating profits and to better to produce more of the product that provides the greater unit contribution margin (University of Phoenix, 2002).
Connie??™s Cookie Shop now has an opportunity to buy a competitor??™s peanut butter manufacturing unit that has an ineffective process and unskilled labors. The decision needs to be made whether or not to purchase buying the unit in order to improve and produce more lemon creme cookies, or the unit can be purchased in order to make peanut butter cookies, or the company could choose to buy the unit at all. Maria purchasing the peanut butter manufacturing unit and increasing the production of the lemon creme cookies, was a good decision because the company met the exact monthly production target and increased the overall profits. The breakeven point for the production of the lemon creme cookies was $563,000 packs, but Maria chose to produce $600,000 which resulted in an overall profit for the company (University of Phoenix, 2002).
Now, in the month of December, Christmas and New Years Eve is approaching and the company needs to increase cookie manufacturing and sales for the holidays. The Bakers have come up with a new flavored cookie called Chocorones; which is a combination of chocolate chips and a Mexican cookie ??“ called Polvorones and with the company??™s current labor-intensive operation, 1 million packs of cookies can be produced for the holidays, but if Maria invests in additional equipment, the cookie company can produce up to 4 million packs of these new flavored cookies a month. Connie has decided to stay with the labor intensive operation instead of the equipment intensive operation.
The indifference point refers to the level of activity that produces the same total cost for two different cost formulas or cost structure (University of Phoenix, 2002). Whether, Connie??™s decision to go with the labor intensive operation or the equipment intensive operation, both operations will equal a 1,000.000 pack of cookies. The variable cost, contributions margin, fixed cost, and operation profits will all change depending on the volume of cookies that are produced but the revenue for both operation will stay the same.
In conclusion, we see how changes in the cost of production and the amount of volume of cookies that are being produced can affect a firm??™s contribution margin and the operating profits. In this simulation, we saw how the lemon creme cookies had a higher unit contribution margin and were more profitable than the real mint cookies which brought in more revenue.
University of Phoenix. (2002). Contribution margin and break even analysis [Computer Software]. Retrieved from University of Phoenix, Simulation, ACC561-Introduction to Management Accounting website.