Accounting Question

Overview
Successful entrepreneurs understand all aspects of business, especially costs and costing systems.
In the course project, you will assume the role of the owner of a small business and apply
managerial accounting principles to evaluate and manage costs related to your services within a
costing system. In the first assignment of the project, you will determine and classify the costs
necessary for opening your business.
Scenario
You plan to open a business manufacturing collars, leashes, and harnesses for pets. To begin,
you will manufacture these in a standard style and size with plans to expand your range over the
year. In a few weeks, you will present your company’s financial strategy to some key investors.
To begin creating your strategy, you need to consider and record all the costs associated with
operating your business. You have decided to use the job order costing system.
Prompt
Use the given operational costs in the Milestone One Operational Costs Data Appendix Word
Document to complete the first two tabs, “Cost Classification” and “Variable and Fixed Costs,”
in the Project Workbook Spreadsheet.
Specifically, you must address the following rubric criteria:
• Cost Classification. Accurately classify all your costs in the “Cost Classification” tab of
your workbook.
o
Identify direct material, direct labor, overhead, and period costs. (Note: Fixed
and variable costs have been classified for you.)
• Variable and Fixed Costs. Complete the “Variable and Fixed Costs” tab of your
workbook. (Note: Some costs are provided for you. Fill in only the missing costs.)
o
Determine your total variable cost per unit and the total fixed costs for each
product. Show your work using calculations to the side of the table or using
appropriate formulas in the table.
Operational Costs Data Appendix
You plan to open a small business for manufacturing pet collars, leashes, and harnesses. You have found
a workshop space you can use for sewing your products. After some research and planning, you have
estimates for the various operating costs for your business.
The total square footage for the sewing rooms is 1,500 square feet broken into three areas (500 square
feet each). You have taken out a loan for start-up costs, and the monthly payment is $550; it goes into
effect immediately and should be accounted for in your costs. You will also collect a modest salary for
the first year of $500 per month; remember to divide evenly among the services.
Salary and Hiring Data
• One collar maker, who will be paid $16.00 per hour and work 40 hours per week
• One leash maker, who will be paid $16.00 per hour and work 40 hours per week
• One harness maker, who will be paid $17.00 per hour and work 40 hours per week
• One receptionist, who will be paid $15.00 per hour and work 30 hours per week
Other Costs
• Rent: $750 per month; allocate based on square footage
• High-tensile strength nylon webbing—$12 per yard of webbing
o 3 collars per yard of webbing
o 2 leashes per yard of webbing
o 2 harnesses per yard of webbing
• Polyester/nylon ribbons—$9 per yard of ribbon
o 3 collars per yard of ribbon
o 2 leashes per yard of ribbon
o 2 harnesses per yard of ribbon
• Buckles made of cast hardware—$0.50 per buckle
o 4 buckles used per collar
o 3 buckles used per leash
o 8 buckles used per harness
• 3 industrial sewing machines at $3,300 each for a total of $9,900; depreciation is $165 per month (5year life, zero salvage value)
• Utilities and insurance: $600 per month; allocate based on square footage
• Scissors, thread, cording: $1,200
• Price tags: $250 for 2,500 ($0.10 each)
• Office supplies: $2,400 or $200 per month
• Other business equipment: $2,000
• Loan payment of $550 per month
• Salary drawn of $500 per month
1
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Cost Classification
INSTRUCTIONS:
Putting an X in the appropriate spot, classify the costs as: Direct Material, Direct Labor, Overhead, or Period Costs.
The Fixed and Variable cost classifications have been provided for you.
Item/Cost
Direct
Material
Direct
Labor
Overhead
Period Costs
Fixed
Variable
Salary – Collar maker
x
Salary – Leash maker
x
Salary – Harness maker
x
Salary – Receptionist
High-tensile strength nylon webbing
x
Polyester/nylon ribbons
x
Buckles made of cast hardware
x
Depreciation on sewing machines
x
Rent
x
Utilities and insurance
x
Scissors, thread, and cording
x
x
Price tags
Office supplies
Other business equipment
Loan payment
x
Salary to self
x
ACC202 – MANAGERIAL ACCOUNTING
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Variable and Fixed Costs
Collars
Item
Variable Cost/Item
Item
High-tensile strength nylon webbing
Polyester/nylon ribbons
Buckles made of cast hardware
Price tags
$
Collar maker’s salary (monthly)
Depreciation on sewing machines
Rent
Utilities and insurance
Scissors, thread, and cording
Loan payment
Salary to self
4.00
Total Variable Costs per Collar
Fixed Costs
$
2,773.33
$
$
183.33
166.67
Total Fixed Costs
Leashes
Item
Variable Cost/Item
Item
Fixed Costs
High-tensile strength nylon webbing
Polyester/nylon ribbons
Buckles made of cast hardware
Price tags
Leash maker’s salary (monthly)
Depreciation on sewing machines
Rent
Utilities and insurance
Scissors, thread, and cording
Loan payment
Salary to self
Total Variable Costs per Leash
Total Fixed Costs
$
–
Harnesses
Item
High-tensile strength nylon webbing
Polyester/nylon ribbons
Buckles made of cast hardware
Price tags
Total Variable Costs per Harness
Variable Cost/Item
Item
Fixed Costs
Harness maker’s salary
Depreciation on sewing machines
Rent
Utilities and insurance
Scissors, thread, and cording
Loan
Salary to self
Total Fixed Costs
ACC202 – MANAGERIAL ACCOUNTING