Phase 1: Planning
1. Select a name for the company.
2. Determine the short-term goals of the company.
3. Determine the long-term goals of the company.
4. Select a recipe.
5. Determine cookie specifications: cookie quality, size, appearance, special features (types of chips, nuts, etc.), quantity, and packaging.
6. Determine the scale of the operations and the distribution channels for your product.
7. Determine the number of employees and their job responsibilities (mixer, baker, timer, quality control, materials purchaser, accountant, marketer, etc.).
8. Assign each employee an hourly wage or monthly salary based on your perceptions of the tasks involved, as well as the job market available.
Phase 2: Estimating the manufacturing costs
9. Using the recipe that you have selected, calculate the cost of direct materials on a per unit basis. You will need to use a conversion chart you can find on the internet as well as actually price your materials wherever you might purchase them.
10. Determine total throughput time per batch. (Mix time plus baking time and packaging for each batch). This will help you determine how much direct labor you will need per batch, as well as how many cookies you can produce in an hour, a month, or a year. .
11. Determine direct labor costs on a per unit basis. Be sure to include only those employees directly involved in the production of the cookie.
12. Estimate total manufacturing overhead for the year (indirect materials, indirect labor, rent, utilities, maintenance, quality inspections, equipment leases, etc.). Determine which costs are fixed and which are variable.
13. Determine the total manufacturing cost of a cookie on a per unit basis (Direct Materials + Direct Labor + Manufacturing Overhead.)
Phase 3: Estimating the period costs, budgeting and using Cost-volume-profit analysis
14. Determine selling and administrative expenses and categorize them into fixed and variable. Remember the difference between manufacturing overhead (the factory) and period expenses such as selling, general and administrative expense. You must include a salary or a wage for yourself as part of the business somewhere.
15. Determine a selling price and explain the reasons behind your decision.
16. Using cost-volume-profit analysis, determine how many cookies that you will have to sell in order to break even and in order to make a target profit of any amount you would deem acceptable Fixed costs should include both fixed overhead and fixed selling and administrative costs. You should also be able to solve for how long it will take to break even and make your target profit in months or years.
17. Provide a planning budget for the first year based on your assumptions you have made. (From Sales to Net Operating Income.)
Phase 4: Operating
18. Determine the size of the cookies before and after baking. (This should have been part of your estimation of through-put time because it will determine how many uncooked cookies you can fit successfully onto a cookie sheet.)
19. Bake the cookies and record the time it took. Can you overlap batches to reduce idle time? Are there efficiencies you can think of that could reduce time and costs?
20. Determine the total units produced in the batch. This number should include all cookies including the ones that do not meet quality specifications and rejects. You will want to allow for spoilage and count the cost of the cookies but not the revenue from them. Will you be providing samples? Again, there will be no revenue directly associated with the samples.
Phase 5: Controlling and analysis
21. Based on the estimates determined through the cost-volume-profit analysis, is it realistic that your company will be able to break even or make the target profit?
22. How much did the size of the cookie before and after baking affect your throughput time?
23. How much did the units sampled for quality control and the units rejected for not meeting specifications affect profitability?
24. Prepare a Flexible Budget analysis based on actual results and activity levels. (You can use a month or a year, and you should determine the effect if actual activity is lower than the original budget planned above.)
25. Explain what you would do and calculate the financial effect you would have (the variance) if your direct materials costs were 50% higher.
26. Describe a strategic decision you might have to make in your business at some point (make or buy, special order, etc.) What factors would you consider in making this decision?
27. If you continue the business and take it to the next level, what capital budgeting decisions do you think you will face and what tools will you use to make the decisions?