Академический Документы
Профессиональный Документы
Культура Документы
Sara Lavingia
Rebecca Raymond
Michael Wilson
Professor John Barden
Table of Contents
1. Executive Summary
2. Investments
a) Labeling
b) Cooling
3. Cost Controls
a) Table 1
b) Figure 1
4. Organization
a) Raw Materials
b) Labor
Page 1
Executive Summary
Humble Pies, Inc. has become successful due to its creativity in pie flavor combinations and a
solid business foundation. The companys goals of producing one pie every five seconds,
controlling its labor costs, and staying competitive in its market will easily be met and exceeded
by following the methods provided in this proposal. We propose the use of innovative
investments, judicious cost controls and labor reorganization, and budgets and sales
forecasts to exceed the companys current goals and ensure its continued success.
Investments
There are two areas of investments that can dramatically increase production, revenue, and
efficiency for Humble Pies, Inc. These investments are machine purchases in the following
categories:
1) Labeling
2) Cooling
Labeling
Assuming that labeling is the most time-consuming step in the pie production process, we
suggest purchasing a large labeling machine that can print labels and affix them to different
packaging containers. This purchase greatly reduces the amount of labor that is currently spent
labeling packages, and also increases speed and efficiency.
Page 2
Cooling
The pie-cooling process, in our opinion, is the
companys largest production inefficiency. There
is an innovative vacuum cooling machine that
can reduce the cooling time to only three minutes
per batch. It takes up 20 square meters instead of
the usual 250 required by most cooling towers. The machine has an initial investment of $1.5M,
but with the exponential increase in production, the cost-benefit analysis shows the company
would recoup that investment in an extremely short period of time.
The anticipated investment in ovens and workstations will not meet the companys goals alone.
For these reasons we recommend coupling the three investments together, ensuring the goal of
one pie every five seconds is met, and providing benefits to the company in the short and long
term.
Cost Controls
Investments will only go so far; we recommend a more effective way of controlling costs.
Although an activity-based costing system may seem effective, it is too costly for the companys
needs. Our analysis provides an affordable, personalized costing system which includes multiple
avenues of cost controls. Table 1 depicts the various cost systems that we recommend, and
shows the bulk of the companys costs are product costs.
Page 3
Figure 1
Cost Category
Sales
Expenses:
Raw Materials
Main Ingredients
Flavor Additives
Bakery labor
Production Line
Packaging
Sanitation
Warehouse
Administration Salaries
Supplies
Freight & Shipping-In
Freight & Shipping-Out
Utilities - Electricity
Utilities Gas
Water
Repairs & Maintenance
Rent expense
Telephone & Internet
Co-owner's salary
Brokers' commissions
Total Expenses
Operating Profit
Income Tax
Net operating income
Unit volume
Average Operating Assets
Minimum Rate of Return
May
2014
$766,667
Cost
Treatment
$327,934
Product
$158,797
$41,367
$3,833
$4,907
$64,707
$9,813
$3,067
$920
$4,293
$19,167
$2,300
$25,300
$30,667
$697,042
$69,625
$22,280
$47,345
Cost Tracking
Cost System
Batch
General Overhead
Standard Cost
Standard Cost
Production Step
Batch
Production Step
General Overhead
Allocation base
(Base: Labor Hours)
Standard Cost
Standard Cost
Standard Cost
General Overhead
General Overhead
Individual Job
General Overhead
General Overhead
General Overhead
General Overhead
General Overhead
Standard Cost
Standard Cost
Customer Order
Standard Cost
Standard Cost
Standard Cost
Standard Cost
Standard Cost
Individual Job
Customer Order
22% Period
Period
Product
Product
Product
10% Period
5% Period
Product
Product
15% Period
Period
Period
Product
Period
64,500
$5,500,000
8.00%
Page 4
Figure 1 shows the main costs of the company are raw materials and bakery labor, but more data
is needed to control these costs. What is the unit cost per pie? How are prime costs
differentiated? Different types of pies should have different costs allocated to them, but currently
the cost is the same per pie type. All of these issues and questions can be resolved through a
comprehensive reorganization of each part of the pie making process.
Figure 1
Product Cost Breakdown for May 2014
Page 5
Organization
Raw Materials
Each pie size should have its own production line, regardless of job order. All ten inch pies
should be cooked together then further subdivided into pie type, such as Chai Apple or Bacon
Chocolate Chess. Raw materials should be broken into main ingredients and flavor additives.
Main ingredients, including eggs, flour, and other materials should be tracked by batch using
standard cost systems within each pie size. Due to their immaterial cost, flavor additives are
calculated in general factory overhead. This breakdown of costs helps determine the price of
each size and flavor pie.
Labor
The organization of labor is the most inefficient company process and, when changed, will result
in major saving for the company. The production of the pies needs to be broken into:
1) Production Line: A production-step cost system would be invaluable here. Labor hours
should be logged on a low-cost computer system that differentiates specific steps of the
production line for each pie (mixing, filling, and baking). These labor hours will be the
allocated base for the cost of production per type of pie for more accurate cost tracking.
This will allow the company to see which pies are more costly in terms of labor hours,
and we can further investigate how to better utilize labor.
2) Packaging: A batch cost system is most effective. All ten inch pies can go into the
different containers, regardless of which customer they are for. While the pies are
cooking, the labels can be affixed to the different packaging.
Page 6
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