Aunt Connie's Cookie Simulation

Aunt Connie's Cookie Simulation

Accounting

561

June 06, 2010

Aunt Connie's Cookie Simulation

Aunt Connie’s Cookies if a family owned company that began in 1989 with the production of lemon filled cookie. Aunt Connie’s then added a mint cookie which is as popular at the lemon creams. Over the past few months Chief Operating Officer (COO) Marie Villanueva has become aware there has been a decrease in sales. Villanueva has several options on how to deal with the decrease lowering price, changing store commission, or reducing production. Villanueva has also been approached by a vender to produce a bulk order of the mint cookie but is only willing to pay 80% of the unit price. Marie Villanueva will need to make financial decisions about her company, and could benefit from using a cost accounting system to determine cost for both her regular production as well as the bulk order.

The important concepts for Villanueva to adhere are fixed cost, variable cost, breakeven point, and contribution margin. Fixed cost are costs that remain unchanged irrespective of the output level or sales revenue of a company (Business Dictionary, 2010). Fixed cost would include things such as rent, depreciation, insurance, interest, and salaries. 2. Variable cost are periodic cost that varies in step with the output or the sale revenue of a company. As production increases the variable cost will change affecting the financial structure as well as pricing and profit (Business Dictionary, 2010). 3. The breakeven point will allow Villanueva to determine at the point in time or number of units sold when forecasted revenue exactly equals the estimated total cost. This is the point where losses end and the company begins to accumulate a profit. 4. Once Villanueva has determined what her cost will be, she then is able to calculate the contribution margin. To calculate the contribution margin or gross profit she will need to subtract the total cost (fixed and variable) from...