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Running head: AUNT CONNIE'S COOKIES SIMULATION

Aunt Connie's Cookies Simulation

AUNT CONNIE'S COOKIES SIMULATION Aunt Connie's Cookies Simulation Cost accounting systems need to provide accurate and timely cost information to help managers make decisions. Without accurate and timely cost information, many decisions can be harmful to a company (Horngren, Sundem, Stratton, Burgstahler, & Schatzberg, 2008). Aunt Connies Cookies Company is growing, and the operations are more complex. Maria Villanueva, the owner of the company must refine the traditional costing system to maintain the accuracy of product and service costs. I will attempt to show how Aunt Connies Cookies could use a cost accounting system to determine their product costs.

At the beginning of the cookie business a traditional-based system was used to determine the production cost of 300 or 600 cookies with supplies and manufacturing time. Traditional systems focus on those inventory values. They do not consider the costs of other value-chain functions because they are not appropriate costs to include in inventory (Horngren et al, 2008). Cost accounting could provide the company with a better understanding of the data and the options that are available to them. Understanding all the costs involved in the process from activity-based costs to production costs will provide the company with the financial insight to make the right decisions. The cost accounting system is nothing more than a technique to set the price of a product. The simulation looks at several aspects from; unit pricing, marketing expenditure, break-even point, operations, etc. During September we take over managing the operations of Aunt Connies Cookies. The previous months have shown a decrease in sales because of the increased prices. Maria Villanueva offered some good suggestions but with our budget we were very selective in our decision-making process on the steps needed to increase sales volume. The prediction tool allowed me to see the relationship between the amount of cookies sold and the decisions I made.

AUNT CONNIE'S COOKIES SIMULATION By lowering the price on Lemon Crme and the Real Mint cookies we saw an increase in sales, but that alone did not give us optimal results. To achieve optimal results, we had to increase contribution to the distributors and increase advertising. The contribution margins for both were relatively close so I decided to maximize the potential of the Lemon Crme cookie. A decision in reducing prices to achieve higher volume would result in higher profitability as long as the sale price per unit did not drop significantly, and make the contribution margin less than the costs. If the contribution margin was greater than the fixed costs the company would maintain profitability. Another notable concern involved special ordering. To produce a special order we had to decide whether or not to use a labor intense approach, or to invest in an equipment intense approach. Labor intense would result in higher labor costs with added personnel and/or overtime costs. On the other hand, equipment intense approach would reduce labor costs; however, increase fixed costs significantly because of the cost of purchasing new equipment. Over time the costs of the equipment would make for better use as long as production continued at a high level. After going through the simulation process, it is quite clear that Aunt Connies Cookies need to understand all the cost relating to the production and manufacturing of their products

before and if they want to make the right decision in regard to production volumes, new products and sales forecasts as well as to effectively allocate the budget within their own departments, such as marketing.

AUNT CONNIE'S COOKIES SIMULATION References Horngren, C.T., Sundem, G.L., Stratton, W.O., Burgstahler, D., & Schatzberg, J. (2008). Introduction to management accounting (14th ed.). Upper Saddle River, NJ: Pearson Prentice Hall.

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