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. Rich’s 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 wasn’t 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 mom’s 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 (Assignment #3)
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 bakery’s 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).