Aunt_Connie's_Cookies

Aunt Connie's Cookies Nick Blodgett Accounting June 07, 2011 Aunt Connie's Cookies Aunt Connie’s Cookies started in 1986 when a small club requested a 500 unit batch of Connie Rocha’s lemon crème cookies, and offered her $50 as payment. Connie requested that she make them 600 cookies for $55. The reasoning for the request was that her ingredient costs were $35 for everything she needed to make the cookies and $10 per 300 baked in her oven. So regardless if she made 500 or 600 she would be spending $55 total. This brilliant accounting spun into a now successful cookie business run by her grandniece Maria Villanueva. What I will be discussing here are the positive effects a cost accounting system can have on Aunt Connie’s Cookies profit margins. A cost accounting system is defined as; “The techniques used to determine the cost of a product, service, customer, or other cost object” (Horngren, 2008). The cost accounting system has to provide cost information in a timely and efficient matter so that management, like Maria, can make decisions about which products to make, in what volumes, and what prices to charge to maximize overall profits. The cost accounting system is a two step process. The first step is cost accumulation which is defined as; “Collecting costs by some “natural” classification, such as materials or labor, or by activities performed such as order processing or machine processing” (Horngren, 2008). For Aunt Connie’s cookies this would be things like the costs of all of the ingredients used to create the cookies, the cost of manual labor versus the cost of machine labor, costs of packaging for the cookies, the advertising cost for the cookies, the costs of shipping the cookies, and the costs of direct sales via website or catalog versus selling to third party distributors. The second step of the process is the cost assignment phase this is defined as; “Attaching costs to one or more cost objects, such as activities, processes, departments, customers, or products” (Horngren, 2008). For Aunt Connie’s Cookies it would be taking the above costs and placing them in certain areas. The ingredient costs and packaging could be placed in the product category. Advertising and shipping the product could be placed in the processes category. The different types of labor could be placed into the specific departments depending on what they do. An example would be the labor working on the advertising would be the marketing department, and then there is the IT department labor to fix broken down equipment, etc. The different types of sales like website, catalog, and third party distributors are the different types of customers and they all come with different costs. The most important aspect in any business is to maximize available profit. A cost accounting system, like the one detailed above, is the most efficient way to achieve this profit. In the Aunt Connie’s Cookies simulation we manipulated volumes, prices, and demand to show the best possible outcomes for profit margin. These manipulations are all part of a cost accounting system, but one aspect we didn’t look into was the cost based on the type of customer. It’s the accounting department’s job to incorporate this into the cost accounting system. A direct selling website would have domain fees, and shipping costs. A catalog would have the cost of creating each catalog and shipping costs. A third party distributor would charge a fee to host the Aunt Connie’s Cookies on their shelves, and possibly shipping costs. Each one of these options has their own costs and benefits. It’s the accounting department’s job to figure out which are cost effective and which are not. In conclusion a cost accounting system can be a very powerful tool if utilized correctly. Aunt Connie’s Cookies already has a very solid foundation for their system, but it does need a few tweaks. First Aunt Connie’s Cookies needs to add the different types of customers available to them into the calculations. Another step would be to achieve more differentiation in their departmental labor to see exactly which departments incur which costs. Add these few changes into their system and there is no limit to Aunt Connie’s Cookies. References Horngren, C. T. (2008). Introduction to Managment Accounting (14th ed.). Upper Saddle River, NJ: Prentice Hall. University of Phoenix. (2002). Contribution Margin and Breakeven Analysis. Retrieved from https://ecampus.phoenix.edu/secure/aapd/vendors/tata/sims/accounting/contribution/accounting_contribution_frame.html