Tracy is unsure how much to charge for the cupcakes. When she was making the cupcakes by herself and only rented a small storefront that was only open on weekends, she calculated the cost per cupcake based on the cost of ingredients and she added 50% to that cost to cover all of her other expenses. She is not sure if that was accurate.

Tracy has asked you to help her determine the cost per cupcake. She has given you her estimated total for each expense. She does not know how to allocate her overhead costs. She also knows that some of her costs are product costs and some are period costs. She has given you a list of costs and needs you to, first, determine which costs are period costs and which costs are product costs and, secondly, determine which are direct materials, direct labor, and factory overhead. She believes that the best cost driver for the factory overhead costs to be the number of cupcakes baked and sold.

Your assignment is to calculate the cost per cupcake and present your findings. 

Explain to Tracy the costs are product costs and the costs are period costs.

She also needs to know which costs are direct materials and direct labor and how you allocated the factory overhead. Your answer can contain charts and other graphics you feel are helpful.

Here is her expected annual data:

The first year she expects to sell 82,000 cupcakes. She will pay her supervisor a salary and her bakers an hourly wage. The person she hires to work in the office will receive salary and her salesman will earn a commission based on the number of cupcakes sold for special events.

Expense	Cost behavior	Estimated annual amount	Additional information
Raw materials	Variable	$32,000	All are purchased as needed to avoid spoilage and to have the freshest ingredients
Bakery wages	Variable	$57,000	They do all of the baking
Supervisor’s salary	Fixed	$33,000	Supervisor does not do any baking
Office personnel	Fixed	$21,000
Tracy’s salary	Fixed	$38,000	She considers herself CEO
Salesman's salary	Variable	$21,500	He is paid based on number of cupcakes sold to special events
Supplies	Variable	$4,500	All used in the bakery
Utilities (electric)	Variable	$5,500	85% is for the bakery and 15% is for the administrative office
Utilities (Gas) for ovens	Variable	$4,500	All for bakery
Water	Variable	$3,600	All for bakery
Repairs and maintenance	Fixed	$5,400	All for bakery
Rent expense	Fixed	$3,500	80% is for the bakery and 20% is for the administrative office
Telephone and internet	Fixed	$4,200	All for administrative office