Aunt_Connie's_Cookies

Running Head: AUNT CONNIE’S COOKIES SIMULATION Aunt Connie’s Cookie Simulation Frances Lewis University of Phoenix April 19, 2010   Aunt Connie’s Cookie Simulation Aunt Connie’s Cookies was founded in 1986. It quickly became a favorite of many, particularly the lemon crème and real mint cookies. This family owned company was previously run by Maria Villanueva. Like many other organizations, Aunt Connie’s is faced with critical decisions that can impact the success of the business going forward. Maria This paper discusses how an accounting based system will be useful in determining product costs. Cost accounting systems exist for business and organizations to analyze financial data and make informed decisions and execute plans to ensure continued success. Numerous cost accounting methods exist for organizations and businesses to use when making such decisions. According to Horngren, “companies adopt cost accounting systems that are consistent with their management philosophies and their production and operating technologies. Changes in philosophies or technologies often prompt corresponding changes in cost accounting systems.” A cost accounting system contains five parts: input measurements bases, inventory valuation methods, cost accumulation methods, cost flow assumptions, and recording interval capacity. Aunt Connie’s Cookies has reached a pivotal point and a decision must be made regarding accepting a bulk order of cookies, buying out a competitor and the strains of meeting demands and continuing to remain profitable. When faced with such decisions, managers and business owners must use the appropriate systems to make the best decision. The company needs to decide whether it’s a good decision to complete the bulk order. Contribution margin analysis is useful to determining the best decision for the company regarding the bulk order. Contribution margin is a cost accounting concept that allows a company to determine the profitability of individual products (Investopedia, 2010). Maria indicated that the total contribution margin and operating profit from the lemon crème cookies are less than that of the real mint cookies. She suggested a reduction in the current production volume and of lemon crèmes and an increase in the real mints to so the bulk order can be accepted. It is not wise to select Maria’s decision. It is better; however, to increase production of lemon crème cookies because it has a greater contribution margin unit than the real mint. The production volume of the real mint cookie will have to be reduced to ensure production does not exceed capacity. If the sales price per unit is a price where the contribution margin is less than fixed cost, the bulk order should not be considered. A break even analysis would be useful to determine whether to purchase an additional company. A break even analysis is a calculation of the approximate sales volume required to just cover cost, below which production would be unprofitable and above which it would be profitable. Break even analysis focuses on relationship between fixed cost, variable cost, and profit (Investor of Words). Aunt Connie’s Cookies, like many other organizations face critical business decisions on a daily basis. Leaders in the organization and business owners must use necessary tools and analysis to make the best decision. Without completing an analysis to determine the impact to the business could result in a loss of profit and long term success of the business. References Horngren,, C. T., Sundem,, G. L., Stratton,, W. O., Burgstahler, D. & Schatzbert, J. (2008). Introduction to Management Accounting (14th ed.). Upper Saddle River, NJ: Prentise Hall. University of Phoenix. (n.d.). Contribution Margin and Breakeven Analysis [Computer Software]. Retrieved from University of Phoenix, Simulation, ACC/561 website. MANAGEMENT AND ACCOUNTING WEB. (n.d.). What is a Cost . Retrieved from http://maaw.info/5partsofcostsystem.htm Investopedia. (2010). Contribution Margin. Retrieved from http://www.investopedia.com/terms/c/contributionmargin.asp InvestorWords. (n.d.). Break Even Analysis. Retrieved from http://www.investorwords.com/574/break_even_analysis.html