2015 COOKIE PROJECT REPORT

The Cookie Factory Company

RITSUMEIKAN ASIA PACIFIC UNIVERSITY

The Cookie Factory Company
7/6/2015
 Group Members of the Cookie Factory Company

MAHAJAN Sahil
ID: 52115001
General Manager

Nam Yong Hyeon PANASAHATHAM Wanas Tran Trung Anh

ID: 52115003 ID: 52115014 ID: 52115002
Production Manager Accounting Manager R&D Manager

THONGPITHUKWONG Sirikarn JIRAPINYO Pashcharidar

ID: 52115008 ID: 52115015
Sales Manager Marketing Manager

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 1. Background
The Cookie Factory Company was established during the spring 2015 semester of
Professor Pardo’s Managerial Accounting class at RITSUMEIKAN Asia Pacific University’s
Graduate School of Management. By 6 members, the project began with a meeting of the
company’s committee to discuss the type of cookies, size of cookies, the amount to be
produced, how much for the first investment in the capital. The discussion ended with a
decision to produce only one type of cookie, and package them in two sizes which are 2 pieces
per pack and 4 pieces per pack. Moreover, total of our profit will be donated to Nepal. After
that, we divided job responsibility to each member in accordance with each dominant skill.
On the first baking, we burned cookies because we did not know how to use the oven
properly. After that, we had a meeting again and searched more information, knowledge, and
met an expert person for consulting. After much research through the internet and baking tests,
our company decided to make and sell high quality chocolate chip cookies, based on a recipe
from the friend of one of founder who is the chef of Indian restaurant in Beppu. Taste tests
were done on founders’ friends led to the perfect combination of ingredients, to produce the
right amount of sweetness and softness.
At 1st buying the ingredients for testing on Sunday, May 17, 2014, the team started and
finished making the cookies on the same day but it was not success because we burned cookies.
After that we bought the ingredients again, and we got some advices from the expert so our
carefully attention was paid to the baking process, to ensure that each cookie met the right
specs of quality and taste. We packed cookies for 2 sizes in clear plastic bag decorated by
“Thank you” sticker.
In order to market its cookies, The Cookies Factory Company created Facebook Fan page
and produced videos for advertising and promoting our information, as well as to draw
attention on sale day. We decorated our booth with colorful paper, cookies pictures and show
videos to promote our products. We targeted on students and faculty staffs from various
countries and regions of the world.
On May 22, 2015, the company launched its cookies at the APU cafeteria, and was
completely sold more than 400 pieces of cookie out in just over 90 minutes. We used three
factors influenced the speed at which we completed our sale:
I. Outstanding decoration – We decorated our booth with colorful paper that attractive
customer together with beautiful pictures and interesting videos.

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 Figure 1&2: Cookies Sale Day on May 22, 2015

Figure 3: Making cookies video clip opened during selling period

Figure 4: APU cute student presenting our cookies video clip opened during selling period
Day

Figure 5: Charity for Nepal video clip opened during selling period

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 II. Charity to Nepal – We communicated to customer that all of our profit will be donated
to Nepal so people were interested and pleased to pay for Nepal.
III. Delivery Service –We put some packages of cookies into the tray and divided some staffs
to walk around the cafeteria in order to reach more customers as much as possible.
We are very proud to accomplish selling our products in very short time as well as we are
pleased that we can be a part to help Nepal.

2. Research and Development (R&D)

The Cookie Factory team had members who didn’t have any baking experience before the
project. So we thought research & development process would be needed to make cookies for
meeting customers’ tastes. In addition, we were introduced to Keshav Ahuja who was running a
restaurant in Beppu by one of our team member. So we could get good advice on how to make
cookies. During R&D, we focused on considering the following points:

 Points to consider
- Type of cookies that we can sell in APU
- Type of cookies that students are willing to buy from our company
- Type of cookies that could be differentiated from other companies
- How many cookies we should produce to avoid loss
- How much revenue to achieve target profit

Even though students like chocolate chip cookies, we discovered that there would be no
chocolate chip cookies served on selling day because they are too sweet, and difficult to make.
As a result, we decided to make semi-sweet chocolate chip cookies with support from Keshav
Ahuja, chef of Ahuja restaurant. Since the cookies should look nice and interesting, we also
used coco powder to provide brown color.

 Equipment

Thanks to Keshav’s help, we were able to use his restaurant between 3 to 5 p.m., when the
restaurant was closed for preparing dinner time. Therefore, we used the restaurant for the R&D
process and pre-sale production process. Fortunately, we also could borrow all the other
necessary supplies – spoons, forks, baking trays, pans, bowls, measuring cups, etc… - from the
restaurant on the day of our preparation.

 Recipe

After our market research, we decided to make chocolate chip cookies. But we did not
decide on the cookie shape until after the first baking practice, because we wanted to make a

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decision after many attempts to shape the cookies by hand. Finally, we agreed the shape of
cookie - circle and 5cm in diameter. According to the size of cookie, we concluded a cookie
recipe that fitted our budget and also the expected profit. The final recipe is as follows:

[Ingredients] for 10cookies

Chocolate Chip··································100 g
Coco powder·····································15 g
Flour··················································85 g
Butter················································125 g
Sugar powder····································30 g
Brown sugar······································30 g
Egg·····················································1 Figure 6: Some of cookies ingredients

[Directions]

1. Preheat oven to 180 °C

2. Put the butter and sugars into a bowl and beat until
creamy.
3. Add egg and mix well
4. Add flour and coco powder to the mixture and mix.
5. Add the chocolate chips and stir well.
6. Drop dough by rounded apart onto cookie sheet.
7. Bake in the oven for 15 minutes.

Figure 7: The baking process

 First baking practice

During the R&D process, we made 20 cookies, at a total cost of 1,130 yen. From this
test, we discovered the timing to bake the cookies, as well as how much sugar and flour to add
in order to make the perfect taste and texture.

Our expenses are broken down as follow:

R&D Expenses (Materials) JPY 600.20

Overhead on R&D Materials JPY 180.06
Total Fixed cost JPY 780.26

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 R&D process Quantity Cost for 20 Cost per
cookies cookie
Direct Materials
Flours 170g JPY 61.60 3.08
Chocolate chip 200g JPY 175.80 8.79
Coco powder 30g JPY 92.40 4.62
Butter 250g JPY 139.00 6.95
Sugar powder 60g JPY 49.20 2.46
Brown Sugar 60g JPY 49.20 2.46
Egg 2 JPY 33.00 1.65
Total Direct Materials JPY 600.20 30.00
Overhead (0.30 x direct JPY 180.06 9.00
material)
Labor cost (700/hour) 30min JPY 350.00 17.50
Grand Total per cookie JPY 1130.26 56.50
*Notes:
i. Neither transportation nor utilities have been included because they were free – the
restaurant permitted us to use utilities for free.
ii. We will account for R&D as an expense.
Following our successful R&D, we decided to sell the cookies for 2 cookies at a cost 150
yen per package and 4 cookies at a cost of 300 yen per package. Knowing the fixed costs and
variable costs, we calculated the break-even point in units and in yen. The breakeven analysis of
our cookies is as follows:

1) 2 cookies per package

Breakeven in unit = Fixed cost/ contribution margin per unit

= 780.26/ (150-56.50*2) = 21.09 packages

Breakeven in Yen = Breakeven in unit * selling price

= 3163.22 Yen
2) 4 cookies per package

Breakeven in unit = Fixed cost/ contribution margin per unit

= 780.26/ (300-56.50*4) = 10.54 packages

Breakeven in Yen = Breakeven in unit * selling price

= 3,163.22 Yen

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  Cookie Specification

The size and shape of the cookies did not change after the baking compared to the before
the baking, because we made hard cookies not using baking soda. Figure 8 shows the size of the
cookies before baking and Figure 9 shows their size after the baking process.

Figure 8: The cookies before baking Figure 9: The cookies after baking
We produced one type of cookie – chocolate chip cookies. And we made 2 types of
packaging which are 2 cookies and 4 cookies per package.

 Budgeting

We decided our sales price 75yen per one cookie. And make our budget for final production
is as follows:

Budgeting 450 cookies unit (per cookie)

Sales JPY 33,750 75.00
Variable Expense JPY
Direct Material JPY 13,500 30.00
Labor Cost JPY 7,875 17.50
Overhead Cost JPY 4,050 9.00
Total Variable Expense JPY 25,425 56.50
Contribution Margin JPY 8,325 18.50
Fixed Expense JPY
R&D Expense JPY 1,130 2.51
Operating Income JPY 7,195 15.99

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 3. Job Measurement Document

After purchasing all materials needed, we did the cookies production part (both baking and
packaging) on Wednesday, May 20th from 3 pm to 5pm.

Cost per cookie 50.67

Cookie Production

Number of cookies produced 450

Number meeting specs 450

Number rejected 0

Number reworked 0

Unexplained differences 0

Total cookies available (1) 450

Cookies sample for quality control (2) 7

Cookies for tasting on selling date (3) 7

Total cookies for selling (= 1 – 2 – 3) 436

* 50 packages of 4 cookies (200 cookies /4 cookies per pack) and 118

package of 2 cookies (236 cookies / 2 cookies per pack)

Cookie Size

Size of cookies before baking 5 cm

Size of cookies after baking 5 cm

Cookie Preparation Time

Mixing time 20 min

Time portioning cookies onto bake sheet 25 min

Bake time for one cookie sheet x Number of cookie sheets processed (2 30 min
cookies sheets for every 15 minutes)

Packaging time 25 min

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 Downtime –

Clean-up time 20 min

Total throughput time (for each person) 2 hours

Required Comments:

 What should be the denominator for the cost per cookie calculation?

We produced total amount of 450 cookies, but there are 14 cookies out of that total were
used as the samples for quality control, or the tasters during selling date, which would
obviously not earn any revenue. Thus, we decided to take 436 cookies remaining as the
denominator for cost per cookie calculation, and spreading out manufacturing costs over that
amount of cookies available for selling.

 What measures would your group use to effectively evaluate production performance?

The approach applied to evaluate the production performance was to identify the
proportion of cookies that meeting specification out of the total number of cookies produced.
In our case, this was 100% - in taste, appearance, and texture. This successful rate was mainly
due to the adequate R&D testing that had gone on prior to the actual pre-sale time baking.

 What measures were unnecessary? Why?

Since we didn’t have to remake any cookies as we used a squeezer to portion out each
cookie onto the baking trays, which made it easier to make precise size, the number of cookies
rejected, reworked, and unexplained differences were unnecessary in this case. It is the fact
that we had already tested and revised our recipe many times in the R&D part helped to
eliminate defective cookies.

4. Job Order Cost Card

The job order cost card for our project is illustrated on the next page.

Required Comments:

 Evaluating the overhead rate.

In reality, the actual overhead rate could exceed 2$ for every dollar of direct materials
costs, and labor costs. In our case, however, we didn’t use any money for indirect materials,
labor costs, or transportation cost and also could actually do a lot of works for free during the

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project, such as free water, electricity, ovens, and so forth. Thus, we decided to only take the
overhead rate of 0.3$ for every dollar of direct materials cost (0.3 yen for every 1 yen), which is
fair in our case.

 What is our group’s consensus on disposing of our overhead variance?

Our overhead variance was 0 yen, because the applied overhead and the actual overhead
equaled each other; they were both 3,766 yen. Therefore, we did not have to dispose any
overhead variance.

The Cookie Factory Company

Job Cost Card

Product: Chocolate chip cookies Date completed: May 20th, 2015

Number of cookies produced for sale: 436 Time started: 3pm ; Time completed: 5pm

Manufacturing
Direct Materials Cost Direct Labour Cost
Overhead Cost

Cost per Cost per Cost

Materials Amount Hour Rate
unit** hour applied

Flours 4kg 300 yen

Chocolate chip 4.5kg 750 yen

0.3 yen
7
for every
Coco powder packages 300 yen 2 hours x
1 yen
of 100g 6 700 yen 3,766
direct
workers
materials
Butter 5.5kg 565 yen
cost
Sugar powder 1.5kg 750 yen

Brown sugar 1.5kg 750 yen

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 4
Eggs packages 130 yen
of 12 eggs

Total direct materials cost 12,553

Cost Summary and Unit Costs

Total Costs (in yen) Unit Costs (in yen)

Direct materials costs 12,553 28.79

Direct labour costs 8,400 19.27

Manufacturing overhead costs 3,766 8.64

Cost of finished goods manufactured (436) 24,719 56.69

* Note: The Job Cost Card above is based on the following assumptions:

 The labor cost per hour of 700 yen was applied based on the fact that this is the
minimum amount of salary, which can be earned from part-time jobs.
 In order to calculate the overhead rate, we considered the following costs:
I. Electricity, ovens: these were free since we were able to use all equipment at our
friend’s restaurant.
II. Transportation: we actually bought ingredients for the project when we went
shopping in the weekend as usual; so transportation costs can be considered as free.
III. Indirect labor: necessary to purchase, make calculations, and sale the cookies; but
these costs are irrelevant since we did not get paid.

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 5. Results

Total Sales Revenue: 32,700 Yen

Revenues and Expenses: Budget against Actual

Budget Actual Per cookie analysis

Budget 450 Cookies 436 Cookies Budget Actual
Sales 33,750 32,700 75.00 75.00
Variable Expense
Direct Material 13,500 12,553 30.00 29.79
Labor Cost 4,050 8,400 9.00 19.27
Overhead Cost 7,875 3,766 17.50 8.64
Total Variable Expense 25,425 24,719 56.50 56.59
Contribution Margin (ratio) 8,325 (24.7%) 7,981 (24.4%) 18.50 18.31
Fixed Expense
R&D Expense 1,130 1,130
Total Fixed Expense 1,130 1,130
Operating Income 7,195 6,851

In budget, the contribution margin ratio is 24.7 %. On the other hand, the actual
contribution margin ratio is 24.4 %. Even though the overhead cost from the budget was reduce
by half, the contribution margin ratio has hardly changed due to the labor cost has doubled.

Total Amount Available for Donation

The Cookie Factory

Total Charity Donation
May 22, 2015
(in yen)
Operating Income 6,851
Add Virtual Expenses:
Direct Labor – R&D 350

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 Direct Labor – Production 8,400
Overhead (R&D) 180
Overhead (Production) 3,766

Total Amount Available for Donation JPY 19,547

The total amount of money available for donation is 19,547 JPY. The amount obtained is
based on the assumption that the direct labor and overhead costs are virtual and would be added
to the operating income.

The amount available for charity accounted to 59.8 % of the sales revenue.

Variance Analysis

Actual Quantity Actual Quantity Standard Quantity

X X X
Actual Price Budget Price Budget Price

436 pieces X 75 yen/piece 436 pieces X 75 yen/piece 450 piece X 75 yen/piece

= 32,700 yen = 32,700 yen = 33,750 yen

Which results in

Overall Budget Variance (1050) Unfavorable

Price Variance (0) Neutral, Satisfactory
Volume variance (1050) Unfavorable

The negative variances, both in budget and volume, result from the burnt cookies (14
pieces). The burnt pieces did not generate any revenue and amounted to 1050 yen in loss. The
rest 436 cookies were sold and generate the total revenue of 32,700 yen.

The price variance is zero because the cookies were sold at budget price.

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 6. Facebook Page – [Please see Appendix]
7. Income Statement

The Cookie Factory

Income Statement
May 22, 2015
Sales JPY JPY
Sales 32,700
Direct Materials Expenses – R&D 600
Direct Materials Expenses – Production 12,553
Overhead (R&D) 180
Overhead (Production) 3,766
Direct Labor – R&D (30 min) 350
Direct Labor – Production (12 hours) 8,400
Total Expenses 25,849
Net Income 6,851

In conclusion, the net income, after accounted for actual and virtual expenses, is JPY 6,851.
However, the actual money on hand amounted to JPY 19,547; this number can be obtained by
adding the overhead and direct labor costs to the net income. In this case, we only accounted for
the direct material costs.

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Appendix 1 – The Cookie Factory Company Facebook page is illustrated below.

https://www.facebook.com/thecookiefactoryapu?fref=nf

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