Aunt Connie??™s Cookies
University of Phoenix
Aunt Connie??™s Cookies
Aunt Connie??™s Cookies that produce real mint and lemon creme cookies throughout the east and mid-west. Maria Villanuea, owner, has appointed a chief operating officer (COO)to assist in making decisions to maximize the firm??™s contribution margin and operating profits (University of Phoenix,? 2009). How will the new COO successfully use the cost accounting system to help determine the company??™s product costs
As the COO begins their career at Aunt Connie??™s Cookies they look at the operations cost in September. The price for Lemon Creme cookies and Real Mint Cookies have increase over the last serval months, this has decreased the volume and profit of the company. Past trends seem to indicate that price reduction spurs demand (University of Phoenix,? 2009).
To maximize contribution margins and operating profits the unit prices for lemon creme and real mint cookies will have to be revised. As of now lemon creme is $2.00 per pack (800000 packs) by reducing this to $1.93 per pack (1012000 packs) will raise the revenue by $225000. This will also reduce the unit contribution margin by $0.04. By reducing the Real Mint cookies to $1.72 per pack (1056000 packs) from $1.80 per pack (780000 packs) will increase revenue by $412000. This will also reduce the unit contribution margin by $0.09 (University of Phoenix,? 2009).
In October a bulk order for real mint cookies. The purchaser wants to buy 1 million cookies at $1.20 a pack. Currently Aunt Connie??™s is producing 2000000 packs at $1.50. Though the contribution margin per pack for real mint cookies from the bulk order is less than your current contribution margin, profits from the untilization of idle capacity in the amount of 500000 packs will offset this deficit (University of Phoenix,? 2009).
In November a competitor??™s peanut butter cookies manufacturing unit has decided to sell due to ineffective processes and unskilled labor. The owner presents two options Aunt Connie??™s can buy the unit and improve baking proccesses by utilizing capacity to make lemon creme cookies or they can buy the unit and continue making peanut butter cookies. The decision was made to buy the unit to produce lemon creme cookies. By increasing the manufacture packs to 800000 from the breakeven point of 563000 packs resulted in operating profits from the new unit. The production target was met for month and has increased overall profits (University of Phoenix,? 2009).
In December the bakers have came up with a new cookie ??“ Chocorones. Chocorones are a combination of chocolate chip cookies and cinnamon flavored Polvornes. The indefference point or the volume at which costs for both labor intensive operations and equipment operations are equal is 1000000 packs (University of Phoenix,? 2009).
Equipment intensive operations have a higher fixed costs and lower variable costs per unit when compared to labor intensive operations. When volumes increase, revenue increases. The presence of lower variable costs per unit in equipment intenseive operations ensures that the operating profits increase more significantly when compared to labor intensive operations. Overall Maria Villanuea is very pleased with the new COO and how their decision help maximize the firm??™s contribution margin and operating profits (University of Phoenix,? 2009).
University of Phoenix. (2009). Accounting for Managerial Decision Making [Computer Software]. Retrieved September? 8, 2009, from University of Phoenix, Simulation, ACC/561 Accounting.