Running head: AUNTIE CONNIES COOKIES
Auntie Connies Cookies
Accounting for Decision Making
January 30, 2011
Auntie Connies Cookies
Connie??™s cookie is a well established business since 1986, Connie??™s Cookies Incorporated is best known for both lemon creme and real mint cookies. The new Chief Operating Officer (COO) has the responsibility to make a decision to maximize contribution margin and the company??™s profits. This paper will reference the decisions made in the Aunt Connie??™s Cookies simulation as well as, if cost accounting will enable the company to be successful (University of Phoenix 2011).
The simulation presented several areas requiring decisions that affected the overall profitability of Aunt Connie??™s Cookies business. One of the primary concerns was in reviewing the unit price per cookie as consumer trends suggested that a decrease in volume recently indicated pricing concerns. Past trends proved that volume increased as unit sale prices decreased. A decision in reducing prices in order to achieve higher volume would result in higher profitability as long as the sale price per unit did not drop significantly and cause the contribution margin to be less than the costs. If the contribution margin was greater than the fixed costs the company would maintain profitability.
As part of the simulation the option to for a bulk order was presented, and by accepting the order and reducing the current volume for the real mint cookies proved to be a wise decision by the COO. Maximizing operating profits is better to produce more of the product that has a greater contribution margin per unit of the lemon cookies.
Aunt Connie??™s Cookies can use cost accounting to determine the product cost by implementing cost volume profit analysis (CVP). CVP is the study of output volume on revenue, expenses and net income (Horngren, 2008). Using this analysis the company is able to use data, to determine the break-even point for selected price points, as well as how the price point will have an impact on demand. CVP takes into account variable and fixed costs, and from that information one could derive the contribution margin. Once the company has determined the fixed and variable costs in the relevant range, the company will have a good idea of costs and where to set prices.
In this simulation lesson learned are at the breakeven point is that the sales volume has no profit or loss at the operating level. A loss is the contribution margin is less than the fixed cost. Here the company can have a positive contribution margin with losses. An indifference point shows activity which produces the same total cost of different cost formulas or structures University of Phoenix 2011). When a company spends less and makes more the company normally has a profit. Lastly the decision made during the simulation were ???Creme De LaCreme??? with the exception of not taking into consideration an increase in marketing to help boost sales. Deciding on a fixed cost as in advertising with a tracking mechanism that will track the success of the volume with profits will allow Auntie Connie??™s to be successful.
Introduction to Management Accounting: Chapters 1-17, Fourteenth Edition, by Charles T. Horngren, Gary L. Sundem, William O. Stratton,
David Burgstahler, and Jeff Schatzberg. Published by Prentice Hall. Copyright ?© 2008 by Pearson Education, Inc. Retrieved from: University of Phoenix week 3 Esource page, https://ecampus.phoenix.edu/content/eBookLibrary2/content/eReader.aspx
University of Phoenix 2011, Simulation Auntie Connie??™s Cookies, Retrieved from: https://ecampus.phoenix.edu/secure/aapd/vendors/tata/sims/accounting/accounting_simulation3.html