Cost Classification (Assignment #1)

Her first action plan was to list all the key products or items that she would need to start the business. Heavens list included a conventional oven, a cash register, flour, sugar, baking soda, raisins, butter, eggs and rum. She also planned on hiring her accounting professor on a part time basis to perform bookkeeping services and her nieces Brianna and Alexis, to help her in the bakery. Aunt Sue Ellen would supervise the girls so that Heaven could focus on developing the business. Heavenly Creations cost drivers are provided in Table 1.

Required: Heaven needs your help in classifying the various costs. In order to manage these costs, she wants them identified using the information below. She asked that you use Table 2 for your answers.

1. Behavior (fixed or variable)
2. Traceability (direct or indirect)

3. Financial reporting (product or period)

4. If product cost, identify which items are direct materials, direct labor or manufacturing overhead.

Item and Ingredients Conventional oven Refrigerator Baking pans, licenses Baking flour Eggs Sugar Baking soda Butter Raisins Others (currants, diced date, nutmeg, molasses) Cash Register Rum (alcohol) Utilities (includes gas, electric and water) Mobile phone (business) Salary-Heaven Salary - nieces Salary-aunt Accountant Rent Estimated MOH TABLE 1: COST INFORMATION Cost $6,000 (depreciated over 5 years on a Straight-Line basis No salvage value) $0 (provided by the landlord) $0 (paid for by dad) $24 per 8 pounds bag $2 per dozen $15 per 25 pounds bag $6 per 14 pounds box $6.50 per 4 pounds $8 per 2 pounds $30 for all 4 boxes per month $12 per month (rental for 2 years) $12 per bottle $50 per month $50 per month $500 per month $8 per hour $100 per month $100 per month $600 per month $4.00 per cake Standard per Cake n/a n/a 1 pound 4 eggs 1 pound 1 pound pound quarter of bottle 1 person 1.5 hours per cake Cake Oven Cash Register Rent Utilities Cell Phone Flour Sugar Baking Soda Butter Raisins Eggs Rum Other Materials Accountant Fee Brianna Salary Alexis Salary Heaven's Salary Aunt Ellen's Salary BEHAVIOR Fixed Variable TABLE 2: COST CLASSIFICATION CHART TRACEABILITY Direct Indirect REPORTING PRODUCT CLASSIFICATION Product DM DL MOH REPORTING Period