Title: Project Arepas Colombianas Colombian Pones

Final Presentation

Submitted to the Faculty of Ana G. Mendez Carlos Ramos

In partial fulfillment of the requirements of the Managerial Accounting

By

Edwin Alexander Gomez A. Miriam Macias Jenifer Padilla

Ana G Mendez University System

Orlando, Florida

April, 2010

Professor Approval: ______________________________

Abstract

In moments of crisis only creativity is more important than knowledge. Albert Einstein Once you have identified an attractive target, move towards him is nice, and not doing so is uncomfortable. Stephen Covey In general, people decide to change course in difficult times. When all is well, just talk about change. Po Bronson

Introduction Arepas Colombianas or Colombian Pones, by his name in English, its a familiar project, that start in February of 2010, due the actual economic crisis in the United States by unemployment, and the need to cover the debs, bills and family expenses but also, the principal factor to be independent and do not continue with the routine paycheck to paycheck, like the most of the immigrants of the United States. Through of this work, it seeks to apply the knowledge gained in the field of managerial accounting in real life, as cost management, budgets and prices, with a company that until now begins, and may be the factor more relevant of the firm to acquire strength and stability over time, and which is also begins to be profitable. Colombian pones with cheese, whose mass is enriched with the addition of milk, butter and sugar well kneaded with warm water and have as its key feature that puts the cheese before baking, when they are making the disks or wheels mass. The pone is a cake dough or cornmeal circular and semi-flattened usually grilled or fried cuisine. It is food used to be eaten as a main dish or as a companion, alone or stuffed, often as part of breakfast, lunch or dinner. It is a traditional dish of Colombian, Venezuelan and Panamanian cuisines. Has achieved a significant spread in the Canary Islands following the return of immigrants from Venezuela. The pone is called a tortilla in Panama for influence in Central America, is linked to the tortilla and Salvadoran pupusas.

Background The academic and historical essays on the culture of Latin America, Mariano Picn Salas, spoke about the origin of the pone as follows: "The Caribs and Cumanagotos used both as the ripe corn, the latter were served to prepare a kind of bread corn (the corn bread), according to techniques that have been preserved to date (1953). The corn bread they called "erepa" as elaborated by giving the mass round, imitating the sun god, paying tribute as divine food. Thus, some locate the origin of the pone in what today is Venezuela, which explains the importance that food means food in Venezuela, where it is assumed that spread to other regions and countries, particularly neighboring Colombia, where he found great acceptance. After the discovery of America by the chroniclers was learned that when Christopher Columbus arrived in San Salvador (first played by Columbus on American soil, island in the Bahamas today, before named Guanahani in 1492), the natives offered pones prepared from cassava and Mahis (Corn). In addition, Fray Pedro Simon, in his News histories of the conquests of the mainland in the West Indies, and Bernabe Cobo, History of the New World, wrote that the natives in America made some cakes "as thick as a finger, which is called pones. From the nineteenth century in Venezuela and Colombia, for each region and each family there is a formula for the pone, which is very popular nowadays, regarded as an icon and very representative of the cuisine and culture of Venezuela and Colombia. In Colombia, the pone is a recognized icon of the Colombian cuisine today. The Colombian pones can be prepared with different types of corn, and get different names, like Choclo or corn pone, prepared with tender sweet corn (corn that is called choclo), white cornmeal, made from white corn flour or its pre-cooked , which is often accompanied by cheese in or on the pone (corn bread with cheese), peeled corn pone typical of the Santander, made with corn previously treated with ash or lime to remove the seed coat,

yellow cornmeal, made with yellow corn flour, cornmeal fried, typical of the Caribbean Coast, made with corn meal pre cooked white or yellow, can be with or without a little cheese, salt, then fried, cornmeal or cornmeal egg yolks, which are fry a little, stuffed with an egg, and finally finish frying; arepa paisa which is basically a white cornmeal, a little thinner, which is prepared and served without salt, without filling to accompany the meal of corn bread mote (Amerindian language word in Quechua means cooked corn); cornmeal boiled (boiled); arepa with hogao; cornmeal wheat, cornmeal Boyaca, valley-and cornmeal arepas stuffed with cheese or any kind of meats and vegetables. In Colombia is celebrated annually on Colombian Arepa Festival in the five largest cities: Barranquilla, Bogota, Bucaramanga, Cali and Medellin. Under the original schedule in each city take turns organizing the festival between the months of August and December. Also prepared charcoal grilled arepas or grilled, sometimes over bijao leaves that give a distinctive odor, which are filled with all kinds of meat (ground beef, try strained, chicken, pork), cheese coast, meats (sausage , pepperoni, sausage), vegetables and sauces. For many years the arepas were a food supplement of the native tribes in Latin America, and through the years have become an essential part of the diet of Hispanic families. The arepas are recognized in most countries of the Americas, but each has its traditional way of preparation where the ingredients vary, the shape and size. Arepas can be made with white or yellow corn, salt, cheese or sugar, may be big, small, thick or thin. The shape of the arepas and the different ingredients that are produced depends on the region where it is consumed. The arepa has become a perfect complement to meals thanks to its mild flavor can be eaten alone or accompanied. There are many recipes and ways to eat and combine the arepas. The U.S. has an excellent corn becoming one of the largest producers of corn in the world. The pones made from the corn, are crunchy, delicious and nutritious. With the immigration of Hispanics and the

popularity of Latin food arepas are rapidly reaching the American markets. One of the most popular is the arepa with cheese, because you Americans have a love for cheese and corn.

Managerial Accounting Analysis The Colombian Pones Company, it is considered a self employment company, which begins operations in February 25 of 2010, in the family house. Some items used in the managerial accounting in companies at big scale, are not used here, because is a very small company, and that items are not a relevant costs to make the analysis in this project. The Inventory system used are a FIFO system, due it is a perishable product and his consumption will be daily, because the production do not use preservatives. The raw materials inventory it is also very small, because the sales daily are very variable and just started with trials and do not have at is time a specific brand of each direct material. All information provided is based on the work carried out during these few weeks and may omit relevant factors in making long term decisions, but is expected to make an evaluation and a deeper financial analysis, once completed is to least one fiscal period a year. Due the small size of operation, to purpose of this analysis, it is considered the process cost system,
because the company produce daily the same quantity of pones, do not the matter if all the production is sold or not. Some days are short, some days left 4 or 5 pones, so it is by this aspect, and the company considers an average of production and sales of fifty pones weekly.

The direct materials in the elaboration of the pones are: Precooked white corn flour Warm water Warm milk Sugar Butter Salt Mozzarella cheese

The presentation of the direct material are as follows, and with those units, gives a production of 50 units that is the same weekly average production: Precooked white corn flour Mozzarella Cheese Sugar Salt at taste Butter Milk Water Bag 5 lb Bag 2 lb Bag 4 lb Bag 1 lb Bar 1 lb 1 gallon 1 gallon $4.89 $7.29 $2.79 $0.79 $0.69 $2.79 $0.011

The direct labor are considered the same profit, due at this moment it is a self employment company, and just expend a 2 hours in the direct manufacturing of the pones and is 1 hour in the transport and delivery and 1 hour in sales. In the production of the pones, is used the following Manufacturing Overhead in a daily basis: Indirect materials Spray Canola Oil Envelope Water 0.2 can 0.5 Yards 1 gallon $0.67 $0.02 $0.011

Utilities Water Electricity Transport 1 Gallon 60W/ hour $0.011 $0.54

1 Gallon gas $2.57 Average 25 Miles

The depreciation costs are not take it in consideration at this moment, due the company just started 6 weeks ago, and are nor a relevant cost in the purpose of this analysis. Direct labor is equal to the profit, due is a self employment company. The time is a total of 3 hours daily. 2 hours in manufacturing and one in sales. To determine the overhead rate at this moment is speculating, because until now, the statistics are being taken and are still assessing the costs of direct materials, manufacturing overhead and at the actual production level, is hard determine if the company will grow up in the middle or in the long term. The company will consider the cost of direct materials only, to determine the price of sale, and it was decided the use of the total cost of direct materials dividing the total number of units produced to determine the cost per unit and thus, determine whether they could make a profit. The development of this calculation is as shown below: Arepas Colombianas Determination of the cost per unit February 25/2010 to March 04/2010 Total units Direct materials Precooked white corn flour Mozzarella Cheese 50 Bag 5 lb Bag 2 lb $4.89 $7.29

Sugar Salt at taste Butter Milk Water Indirect materials Spray Canola Oil Envelope Water Utilities Water Electricity Transport* Total Costs Cost per Unit *Depreciation are not considered

Bag 4 lb Bag 1 lb Bar 1 lb 1 gallon 1 gallon 0.2 can 0.5 Yards 1 gallon 1 Gallon 60W/ hour 1 Gallon gas

$2.79 $0.79 $0.69 $2.79 $0.01 $0.67 $0.02 $0.01 $0.01 $0.54 $2.57 Average $23.0 7 $0.46

The total units produced in the week is the same that are sold in the week, because due the nature of the product, the company cannot keep inventory of finished products, but can keep the product in process for undefined periods of time, according the needs of the production and the demand of the product. To compute the equivalent units, this measure will be made in a daily basis, because every week start with a new process and at the end of that week, the final inventory of products in process and finished product are zero. With the purpose to show the equivalent units, it is show as follows: Work in process units Feb 25/2010 Direct Materials Conversion costs 100% Complete 24% Complete 50 0

Units started into production during this week

Units complete and transferred out to baking Work in process units end Feb 25/2010

12 38

Over the week, the products in process are decreasing with the purpose that at the end of the week, the products in process will be zero. To make a complete analysis of the equivalent units, it is take the next day as follows: Work in process units Feb 26/2010 Direct Materials Conversion costs 100% Complete 48% Complete 50 12 12 26 24 $23.07 $11.075 $11.075 $22.15 $0.461 38

Units started into production during this week Units complete and transferred out to baking today Units completed and sold Work in process units at end Feb 25/2010 Units accounted for completed, transferred out and sold Feb 26 Costs of direct materials 100% Conversion Costs 48% Complete Cost incurred during production at Feb 26 Total Conversion Costs Unit Conversion Costs

Materials Units transferred out Work in Process 50 * 100% 50 * 48 % Total Equivalent Units 50 26 24

Conversion Costs 24

24 48

Now, it is show the unit production cost: Total Material Costs Equivalent Units of Materials Unit material Cost Cost of goods in process Started into Production Total Costs Total manufacturing Cost per unit $23.07 50 $0.46 $11.073 $11.075 $22.148 $0.921 (Unit Material Cost + Unit Conversion Cost)

Due the size of the company, it is not possible at this moment work with an Activity-Based costing, because it is just one person doing all the activities, so the cost drivers are focus in one person with many activities, and the values are very small go get a representative impact in the determination of the cost and prices to sold.

Now, to determine the Variable and the Fixed Costs, it is used the actual information over the different weeks, plus some projections of production, with the purpose of illustrate the Cost Volume Profit Analysis, Contribution Margin Analysis and Contribution Margin Ratio, BreakEven Analysis, Relevant Costs and Flexible Budgets. It is used the High-Low method to compute the variable and fixed costs, because all the weeks the company keep the same production of 50 pones, and at the end of the week, the inventory is reduced to a small portion of raw materials, but every day the production varies and not all days keep the same production, although at the end of the week, keep the production at level of 50 units. The Variable cost include all the direct materials, the fixed cost are the indirect materials, the utilities and the transport, because no matter the level of production, always going to incur these costs there will be a unit or fifty in a single day. In an operation of a 100%, the production by hour is 12 units and the fixed cost keep at the level show above. Some days, the company operates at 50% but not less, and tries all the days keep the level of production 75% to 100%. To get the CVP analysis, it starts with the determination of the total cost per units, using the relevant range and the actual level of production with a daily basis, with the purpose to illustrate the CVP analysis. Arepas Colombianas Determination Relevant Range March 04/2010

Operation at Actual Operation Relevant range

% 100 95 90 85 80 75

# units 12 11.4 10.8 10.2 9.6 9

Costs $5.52 $5.24 $4.97 $4.69 $4.42 $4.14

70 65 60 55 50 45 Cost per unit $0.46

8.4 7.8 7.2 6.6 6 5.4

$3.86 $3.59 $3.31 $3.04 $2.76 $2.48

With the objective to illustrate the use of the High-Low Method, it takes the information of the dark blue area of the table shown above, but with a projection until one hundred units, by the projection model, without taking the changes in the relevant range at the different levels of fixed costs that will be shown more forward. Arepas Colombianas High-Low Method February 25/2010 to March 04/2010 Production Based in Daily Sales Units Monday Tuesday Wednesday Thursday Friday 12 7 11 9 11 Costs $5.52 $3.22 $5.06 $4.14 $5.06 $23.0 Total Week High Low Selling Price x unit Variable Cost 50 12 7 $1.00 $2.17 0 $5.52 $3.22 Sales $12.0 0 $6.00 $11.0 0 $9.00 $12.0 0 $50.0 0

Variable Cost x unit Contribution Margin Contribution Margin x Unit Contribution Margin Ratio Fixed Costs Total Costs Total Costs x Unit Break Even Point in Units Break Even Point in $ Net Income Week

$0.04 $47.83 $0.96 95.65% $20.83 $23.00 $0.46 21.7727 $21.77 $27.00

Total # Units 0 10 20 30 40 50 60 70 80 90 100

Variable

Fixed Sales $0.00 $10.00 $20.00 $30.00 $40.00 $50.00 $60.00 $70.00 $80.00 $90.00 $100.0 0

Costs Cost Cost $20.83 $0.00 $20.83 $21.26 $0.43 $20.83 $21.70 $0.87 $20.83 $22.13 $1.30 $20.83 $22.57 $1.74 $20.83 $23.00 $2.17 $20.83 $23.43 $2.61 $20.83 $23.87 $3.04 $20.83 $24.30 $3.48 $20.83 $24.74 $3.91 $20.83 $25.17 $4.35 $20.83

Graph CVP Analysis To define the relevant costs at this time are not considered in the reality, because it is a new company, just have a few week in operation. But, to follow the objetives of the analysis, consider the alternative one like the production of cheese pones and the alternative 2, the filled pones with chiken. Some people do not like the cheese, but also some people do not like the chicken, but booth kind of people enjoy the pones. to take this consideration, it is replace the cheese by the chicken, to decide wich of those kind of pones are more profitable.

Arepas Colombianas Switch the cheese for chicken Projection Over the week

Total units Direct materials Precooked white corn flour Chicken

50

Bag 5 lb Tray 2 lb

$4.89 $2.53

Sugar Salt at taste Butter Milk Water Indirect materials Spray Canola Oil Envelope Water Utilities Water Electricity Transport* Total Costs Cost per Unit

Bag 4 lb Bag 1 lb Bar 1 lb 1 gallon 1 gallon

$2.79 $0.79 $0.69 $2.79 $0.01

0.2 can 0.5 Yards 1 gallon

$0.67 $0.02 $0.01

1 Gallon 60W/ hour 1 Gallon gas

$0.01 $0.54 $2.57 Average $18.3 1 $0.37

Operation at

% 100 95 90 85 80 75

# units 12 11.4 10.8 10.2 9.6 9

Costs $4.40 $4.18 $3.96 $3.74 $3.52 $3.30 $3.08

70 8.4 Arepas Colombianas High-Low Method

February 25/2010 to March 04/2010 Production Based in Daily Sales Units Monday Tuesday Wednesday Thursday Friday 12 7 11 9 11 Costs $4.44 $2.59 $4.07 $3.33 $4.07 $18.5 Total Week High Low Selling Price x unit Variable Cost Variable Cost x unit Contribution Margin Contribution Margin x Unit Contribution Margin Ratio Fixed Costs Total Costs Total Costs x Unit Break Even Point in Units Break Even Point in $ Net Income Week 50 12 7 $1.00 $1.71 $0.03 $48.29 $0.97 96.59% $16.79 $18.50 $0.37 17.3869 $17.39 $31.50 0 $5.52 $2.59 Sales $12.0 0 $6.00 $11.0 0 $9.00 $12.0 0 $50.0 0

At this point, are more profitable the Chicken pones due the low price of the chicken. At moment to made the pones and sold, it is found that the people prefeer the cheese pones that

the chicken pones. That day, the company just sold 3 pones of chicken and left 9 units, so, generate a loose of $24.16. so, at this point it is consider the oportunity cost more that the relevant costs, because the company reduce the costs, but are a product that do not have the same demand that the cheese pones. Now, to create a flexible budget for the sales levels at 95%, 100%, 105%, it is started with the preparation of the operating budgets. Some of the budgets that it will be show, are the sales budget, production budget, direct materials budget, income statement budget, and will made the analysis at the different levels of sales of the flexible budgets. Due the budgets are a periodic controls of the projections in the short term, Arepas Colombianas made the proyection until the end of the present year, with the objetive to evaluate if the company was profitable, which areas need to improve, which areas are relevants and also, try to keep the company in the market to, in the long term, the company increase their operations. Cost per unit Week of (days) % 150 145 140 135 130 125 120 115 110 105 100 95 90 85 # units 18 17.4 16.8 16.2 15.6 15 14.4 13.8 13.2 12.6 12 11.4 10.8 10.2 $0.46 5 Weekly Costs $8.28 $8.00 $7.73 $7.45 $7.18 $6.90 $6.62 $6.35 $6.07 $5.80 $5.52 $5.24 $4.97 $4.69 Prod 90 87 84 81 78 75 72 69 66 63 60 57 54 51 Weeks Quarter Prod 1080 1044 1008 972 936 900 864 828 792 756 720 684 648 612 12

80 75

9.6 9

$4.42 $4.14

48 45

576 540

Arepas Colombianas Sales Budget For the year ending in Dec 31/2010 Quarter Sales at 95% 1 Expected unit sales Unit Selling Price Total sales 684 $1.00 $684.0 0 2 684 $1.00 $684.0 0 Quarter Sales at 100% 1 Expected unit sales Unit Selling Price Total sales Sales at 105% 1 Expected unit sales Unit Selling Price Total sales 756 $1.00 $756.0 0 2 756 $1.00 $756.0 0 3 756 $1.00 $756.0 0 4 Year 756 $1.00 $756.0 0 3024.0 $1.00 $3,024.0 0 720 $1.00 $720.0 0 2 720 $1.00 $720.0 0 3 720 $1.00 $720.0 0 Quarter 4 Year 720 $1.00 $720.0 0 2880.0 $1.00 $2,880.0 0 3 684 $1.00 $684.0 0 4 Year 684 $1.00 $684.0 0 2736.0 $1.00 $2,736.0 0

If take in consideration an increase by quarter of the production, almost of the 1%, it is necessary taking in consideration the increases of the fixed costs, changes in the relevant range and posible increases also in the variable costs, but keeping the same sales price per unit, while the variables will increase. To reduce the fixed cost will be necessary change the equipment used at this time, to reduce the comsuption of energy, and will be reevaluate the kind of envelope used at the moment. Other way to reduce the costs, are changing the method of purchaing, due the purchases are in normal supermarkets and if the company contact wholesale distributors, the volume of the raw materials will increase at lower cost, and the company can keep the same sales price. It to remember that due the nature of the product, it is impossible keep inventory at the end of the day. So, make a production budget without the infraestructure to make the projections and estimates, it is just an illusion. Anyway, it is for ilustrative purposes that is shows bellow: If it is dessired a production of 756 units by quarter (105% of the production level), it is consider the following: Budgeted Sales units Desired Ending Finished Goods Beginning Finished Goods Production required 720 756 600 876

The budgetes Sales units is taked in consideration with a 100% of the production daily and with the period of five days by twelve weeks, that is the quarter. On the direct materials budget , was considered the table show above: Direct Material Required for production Desired Ending Direct materials Beginning Direct materials Required Direct materials to be $20,211.95 0 $13,843.8 0 $6,368.15

purchased The Manufacturing Overhead Budget is as shows bellow: Quarter 2 3 $180.0 $180.0 0 0 $96.00 $96.00 $390.0 $390.0 0 0 $42.00 $42.00

Utilities Energy Water Transport Envelope $60.00 monthly $32.00 monthly $130.00 monthly $14.00 monthly

1 $180.0 0 $96.00 $390.0 0 $42.00

4 $180.0 0 $96.00 $390.0 0 $42.00

To make the flexible budget, takes the levels of 95%, 100% and 105% of production and assuming that all the production are sold and do not leave a losses. Arepas Colombianas Sales Budget For the year ending in Dec 31/2010 Quarter Sales at 95% 1 Expected unit sales Unit Selling Price Total sales Variable Costs Fixed Cost Total Costs Net Income Sales at 100% 1 Expected unit sales Unit Selling Price Total sales 720 $1.00 $720.0 2 720 $1.00 $720.0 3 720 $1.00 $720.0 4 Year 720 $1.00 $720.0 2880.0 $1.00 $2,880.00 684 $1.00 $684.0 0 $29.74 $284.9 0 $314.6 4 $369.3 6 2 3 4 684 $1.00 $684.0 0 $29.74 $284.9 0 $314.6 4 $369.3 6 Year 2736.0 $1.00 $2,736.00 $118.96 $1,139.60 $1,258.56 $1,477.44

684 684 $1.00 $1.00 $684.0 $684.0 0 0 $29.74 $29.74 $284.9 $284.9 0 0 $314.6 $314.6 4 4 $369.3 $369.3 6 6 Quarter

Variable Costs Fixed Cost Total Costs Net Income

0 $31.30 $299.9 0 $331.2 0 $388.8 0

0 $31.30 $299.9 0 $331.2 0 $388.8 0

0 $31.30 $299.9 0 $331.2 0 $388.8 0

0 $31.30 $299.9 0 $331.2 0 $388.8 0

$125.22 $1,199.58 $1,324.80 $1,555.20

Quarter Sales at 105% 1 Expected unit sales Unit Selling Price Total sales Variable Costs Fixed Cost Total Costs Net Income 756 $1.00 $756.0 0 $32.87 $314.8 9 $347.7 6 $408.2 4 2 756 $1.00 $756.0 0 $32.87 $314.8 9 $347.7 6 $408.2 4 3 756 $1.00 $756.0 0 $32.87 $314.8 9 $347.7 6 $408.2 4 4 Year 756 $1.00 $756.0 0 $32.87 $314.8 9 $347.7 6 $408.2 4 3024.0 $1.00 $3,024.00 $131.48 $1,259.56 $1,391.04 $1,632.96

At this time is uncertain determine if the flexible budget are favorable or unfavorable, due the short history of the company and the size of the same. It is important view that although the company have an small size, started a few weeks ago and is a self-employment company, the invests was very small, the profit it is very high (more of the 50% of the costs) and have the acreditation of the customer that the product have a very good taste, smoothness and meets with the expectatives that the people want.

References

Weygandt, J., Kimmel, P., Kieso, D. (2010) Managerial Accounting Edition 5, Willey and Sons, Inc. Gomez, O., Zapata, P. ( 1998) Contabilidad de Costos, Tercera Edicion, McGraw Hill.