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Questions:4- Business Background

Rich watched his mom making cakes for the Jewish holidays since he was a kid. He even faked being sick so he could stay home and smell the delicious aroma of cinnamon, brown sugar and the yeast dough as it came out of the oven. Lots of people in the neighborhood came over before the holidays to put in their orders. Mom had learned from her mom and had all the recipes written on 3 x 5 index cards in case Rich or his brother wanted them. Richs dad encouraged him to become an accountant because a profession would provide a solid income and career opportunities. The problem is, he hated Accounting. Well, maybe hate is too strong a word, but it wasnt what he enjoyed doing. He was a cook.

One day in Managerial Accounting class, Rich made a decision. He was going to quit school at the end of the semester and open up a bakery specializing in his moms cakes. He anticipated that most of his business would be based on special order, customized cakes. He figured he could service family weekend gatherings, birthday and weddings celebrations, and, of course, the Jewish New Year celebrations. Although most of the baking would be to order, he would maintain a limited inventory for drop in customers. In December of 2016, he left school, created a business plan, and incorporated S & S Bakery. The plan was to open for business on January 1, 2017. He would use the $50,000 his dad left him when he passed away two years earlier as start up capital and pay himself a minimum salary of $500 month for the first year. His friend Maria, a marketing executive with her own firm, agreed to provide marketing support for a cake a year. He found a location in Valencia close to a well known Hebrew school. The storefront was on Copperhill Drive, a busy street with a Starbucks and several restaurants. The landlord was impressed with his initiative and agreed to pay for all the leasehold improvements and charge $600 a month. Business Transactions Rich spent the month of December talking to various suppliers in order to determine his cost structure. The results are listed in Table #1. S & S opened on time in January. During the month they used 200 pounds of flour, 200 pounds of sugar, 67 dozen eggs and had 4 bad eggs to dispose of during the month (the cost of the eggs is immaterial), 20 baking soda boxes, 200 pounds of butter, 100 pounds of raisins, and other ingredients (one box of each for a total of three) all from one supplier on account. Manufacturing overhead is applied to production at $4 per cake. Rich purchased the oven using the startup capital and paid all the salaries. The girls worked 300 hours in total for the month. The first month was very good for the bakery as they baked and sold 200 cakes for cash. The average price was $50 per cake. All manufacturing overhead is closed out at the end of the month. The supplier was paid, in full, at the end of the month also. Required: Document the bakerys transactions using T- accounts (round all calculations to 2 decimals). All other costs such as utilities must be accounted for in the T accounts (assume such transactions where applicable, are paid in cash).

ITEM AND INGREDIENTS	COST	STANDARD PER CAKE
Conventional Oven	$6,000 (depreciated over 5 years on a SL basis No salvage)	n/a
Refrigerator	$0 (provided by landlord)
Baking pans, licenses	$0 (paid by dad)
Baking flour	$24 per 8 lb. bag	1 pound
Eggs	$2 dozen	4 eggs
Sugar	$15 per 25 lb. bag	1 lb.
Baking soda	$6 per 14 lb. box
Butter	$6.50 per 4 lb.	1 lb.
Raisins	$8 per 2 lbs.	lb.
Others (cinnamon, yeast, walnuts)	$30 for all 3 boxes per month
Cash register	$12 per month (rental for 2 years)
Utilities (includes gas, electric, and water)	$50 month
Mobile phone (business)	$50 month
Salary Rich	$500 month
Wages Michelle/Jen	$8 hr.	1 person 1.5 hours
Salary Fern	$100 month
Accountant	$100 month
Estimated MOH	$4 per cake

Reporting

Rich doesnt want to see journal entries and T-accounts. However, he is interested in seeing a Statement of Cost of Goods Manufactured. He thinks a business owner should see the information that way. Required: Prepare the Statement of Cost of Goods Manufactures for January. Also, prepare an Income statement for the month of January.

Statement of Cost of Goods Manufactured

For the month ended 1/31/2017

Direct Materials Raw Materials Add: Purchases of Raw materials Raw Materials Available for use Deduct Ending raw Materials Raw Materials used in production Direct Labor Manufacturing Overhead Total Manufacturing Cost Add: Beginning WIP Deduct: Ending WIP

Cost of goods Manufactured

Income Statement

For the month ended 1/31/2017

Sales

COGS

Gross Margin

Expenses:

Cash register

Salary Expense

Phone Expense

Acct expense

Total Expenses

Net Income

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