Cost Accounting

Presented to the Faculty of the School of Business and Management

Xavier University- Ateneo de Cagayan

In partial fulfillment of the requirements for Cost Accounting

S.Y. 2019-2020

Submitted by:
Justine Marie De Toro
Jessa Ailaine D. Evangelio
Donna Czalea S. Lusabia
Murphy Mutia
Rhosellie Naguicnic
Christian B. Neri
Suzfinzi Raffaello Q. Yema

BSMA- MB 1

Submitted to:
Ma’am Zola Mae Caumban

March 9, 2020

I. Brief Background of the Business

A. History

As a requirement in the Business Administration Course, they should come up

with a business in order to learn and experience managing and have a feasibility study

of their own business. The business is called CoffeeCounter. They are composed of 7

members which have concluded the idea of the product, which is Iced Coffee and has

three flavors, chocolate, vanilla and their original flavor. They thought of selling Iced

Coffee because they observed that most of the other FS groups are selling food, which

is why they wanted to sell beverages, which is specifically iced coffee because it is the

most preferred as well by students nowadays.

B. Product Description

CoffeeCounter will be serving a cup of coffee that will treat your mind and body,

and soul since it will give numerous health benefits to those who will consume it. It can

boost immunity, helps with weight loss, improves memory, lower cholesterol, reduces

inflammation, relieves stress, promotes a good night's sleep, and is a source of

antioxidants. CoffeeCounter will also be serving coffees with numerous flavors and

different add-ons to choose on.

C. Mission

Exceeding customer’s expectations with continuous innovations of our products.

Maintaining the highest standard quality and proper ethics in everything we do. Providing

coffee products, efficient and effective services to our customers. Promoting a plastic-

free environment.

D. Vision

To be able to operate and compete with other coffee businesses after this

feasibility study.

E. Address/Location of the Business

The business stall is located at Xavier University- Ateneo de Cagayan, 73

Corrales Avenue, Cagayan de Oro City, 9000, Misamis Oriental. .

F. Capitalization
 All the 7 members have the same capital contribution, amounting to P

4,919.38 to cover up the needed capital to start up the business. The total capital

contribution is P 34,435.66

A. CAPITAL BREAKDOWN

Pre-Operating Expenses

Business Permit 1,500.00

Sanitary Permit 1,000.00

Stall Designs 3,500.00

Electric Kettle 1,000.00

Refrigerator 8,600.00 15,600.00

Marketing Expense 2,030.00

Production Expense 6,616.66

Administrative Expense 5,189.00

Petty Cash Fund 5,000.00 18,835.66

TOTAL CAPITAL 34,435.66

G. Organizational Structure

H. Competitors
 There are three competitors identified by the business which are McDonalds,

Dunkin Donuts and Luscious Cake Coffee Jelly.

 McDonalds - located across the main entrance of Xavier University. They serve

hot and iced coffee and milk tea that customers can buy and then leave or stay.

As being observed, most of the consumers of their iced coffee are college

students with it said that they have a very good store location.

 Dunkin Donuts - located just straight-ahead RN Abejuela in the Divisoria area.

Dunkin Donuts offers different donuts and sandwiches that customers can pair

up with an iced coffee or hot coffee of their choice. As observed, during their

peak hours, it was mostly students who comes in and purchase their products.

 Luscious Cake Coffee Jelly- a store that is in front of SEC mall where it is very

accessible for the student in the university. Their type of store is like an on-the-

go, where a customer purchase and then leave.

I. Target Market

● Geographic

The area that CoffeeCounter would consider is the University with an area size of

70.82 hectares, and the streets within RN Abejuela and Chaves, but the area that the

researchers will consider from these streets is only from McDonalds up to Dunkin Donut.

● Demographic

The target market of Coffee Counter are the college students of the Xavier

University – Ateneo de Cagayan which has a population of 6,025 and a sample size of

362 random college students. College students 16 years old up to 19 years old and

above can participate in answering the survey.

● Behavioral

Every college student needs coffee to stay awake when they are studying, to

keep them energized to whole time being in school, to satisfy their own cravings, and

sometimes, buying a cup of coffee became a normal routine on their usual days. Just by

passing in the SEC mall, they can already visit our store and see the variants of coffee

that CoffeeCounter will be serving.

J. Production Plan

The nature of business used by Coffee Counter is manufacturing because they

are converting raw materials into finished goods or into a final product that they will be

selling. The whole production of their product will take a maximum of 2 minutes to be

done. Each step of the procedure is assigned to the /mixer in order to run things
 smoothly and faster for the satisfaction of the customers. the business has a production

schedule including the number of days they will be selling per month, as well as the

number of units, with this they are able to know their objective units and selling days in

their production.

K. Price

The price strategy that the company will be using is strategy which is setting a

low price to attract customers and to make sure that the price affordable by our target

market. The price that CoffeeCounter will be offering to its customer is P55. With this

price, the customer can choose any kind of flavor of coffee they want, and just add P10 if

they want to have an add-on of their choice. The pricing of the product is based on

costing, PCC and FGI.

II. MANUFACTURING COST VARIANCES

MATERIALS
Variance Type Total Actual Total Actual Total Standard Variance
Cost Quantity at Cost Amount
standard price

Net Materials P 14,359.50 P 20,089.83 P 5,730.33 (F)

Variance

Material Price P 14,359.50 P 15,182.84 P 823.34 (F)

Variance

Materials Quantity P 15,182.84 P 20,089.83 P 4,906.9 9 (F)

Variance

Variance -28.52% (F)

Percentage

Analysis
1. Though the materials price variance shows a favorable outcome, the business still

shouldn’t be satisfied about this. The business still lacks proper recording and budgeting

systems since there are some direct materials that are used in actual production that

weren’t included in their budgeted proposal. With the business failing to record some of

the direct materials, it wouldn’t be able to achieve a favorable outcome if weren’t for a big

margin in the standard and actual prices. If the business continues to fail recording some

of the direct materials in their budgeting, this could pose a serious loss to the company’s

profitability.
2. However, the favorable variance is caused by mostly that the standard or budgeted price

for each material was lower than the actual prices. There must have been a decrease of

market as they have reached in their actual production.

3. The materials quantity variance shows a favorable variance. The actual purchased

materials are lesser than what is in the stated budgeted plan. As both actual and standard

are set at 746 units, the business was efficient enough to purchase materials less than

standard or budgeted number of materials, and still they were able to produce the same

number of units.

4. Overall, the business was able to efficiently and effectively use their materials as they

were flexible enough to reach favorable variances in the actual production compared to

what they have budgeted in their standard production.

Recommendation
1. In budgeting it is important that the business take into account all the necessary direct

materials needed in the production. Keeping a record of all direct materials to be used in

the production, will ensure that the company will be able to make allocation of budget for

all direct materials thus will prevent shortage of budget.

2. In order to avoid acquiring more materials than what is budgeted, it is important to keep an

eye on the business actual spending and the business production process to ensure that

the materials are used properly and it was not used excessively. Through thorough and

constant supervision the management will be able to assess on how they’re spending. If

the management finds out that they are already spending too much, then the management

could find ways to cut costs. One way to cut cost is through canvassing. Canvassing will

help the business to find a supplier where they could get their supplies at a good quality

with lowest price possible.

 LABOR
Variance Type Total Actual Total Actual Total Standard Variance
Cost Quantity at Cost Amount
standard price

Net Labor P 5,250 P 5,250 P 0 (F)

Variance

Labor Rate P 5,250 P 5,250 P 0 (F)

Variance

Labor Efficiency P 5,250 P 5,250 P 0 (F)

Variance

Variance 0% (F)
Percentage

Analysis
1. There is no variance in the labor rate and labor usage since the rate and hours of their

labor are fixed.

2. The business was efficient and consistent with their budgeted costs for Labor.

3. As a starting business, they have treated their labor as a fixed cost in order to lessen

their manufacturing costs, and since that all members are actually workers in the

business.

Recommendation
1. In order to produce a budget that can easily be attained by the company, they should

know and learn to implement selling schedules in order for them to work in the

appropriate and exact time and their specific jobs should be done accordingly in order

not to waste time and there will be a continuous manufacturing of products.

2. In order to ensure that there will be a proper budget allocation for direct labor, it is

important to take note of how many workers are going to work, the rate per hour and

how many direct labor hours are expected.

3. Since there is no variance in the labor rate and labor usage because the rate and

hours of their labor are fixed. The management should still be responsible to keep their

staff under control of their hours of working so that their fixed labor would be effective,

making sure that their work is efficient.

4. The management should conduct trainings to improve product technique and services

with that it will increase their efficiency of the business, also it will enhance their labor

efficiency.
 FACTORY OVERHEAD
Variance Type Total Actual Total Actual Total Standard Variance
Cost Quantity at Cost Amount
standard price

Net Factory P 3,428.94 P 9,824.37 P 6,395.43 (F)

Overhead Variance

Factory Overhead P 3,428.94 P 3,906.43 P 477.49 (F)

Controllable
Variance

Factory Overhead P 3,906.43 P 9,824.37 P 5,917.94 (F)

Volume Variance

Variance 65.10% (F)

Percentage

Analysis

1. When the applied cost is greater than the actual cost, the variance is favorable. The

company’s factory Overhead Controllable Variance shows favorable outcome (P477.49 F)

which indicates that the business’ costs are lower than expected. The business was able

to reduce its expected or estimated cost of indirect materials, labor, and other expenses in

producing their finished products against what the business actually incurred during

production. This benefits the business because it shows that they are able to effectively

minimize their costs of production which results in an increase in income.

2. The Production-volume variance measures the difference between the budgeted fixed

cost and the actual fixed cost. As seen in the computation, the budgeted fixed overhead is

greater than the actual overhead which shows a favorable result (P5917.94 F) which

indicates that the company was able to produce an excessive amount. This means that

the factory overhead can be allocated across more units resulting in a lesser cost per unit

depicting the efficiency of its management in terms of their resources.

3. A production greater than the budgeted number of units will always produce a favorable

production volume variance. The standard number of units produced were only 255 units,

but in the actual production, the business produced 746 units. This is because by

spreading the fixed costs over a fewer number of production than were budgeted for the

per unit production is more expensive than planned, but then they were also able to

estimate their budgeted fixed factory overhead higher than the actual fixed overhead,
 which made a higher variance for production volume.

4. Overall, the company’s Factory Overhead Variance shows a favorable result with a total

of P6,395.43. This shows that the business was able to properly utilize its factory

overhead through efficiently minimizing costs of production and producing a desirable

quantity of products within the month.

Recommendation
1. During the period of operation, the company is recommended to make constant monitoring

on their overhead costs and enforce actions such as cut-off costs in cases when the

business is already in excessive quantities. This will serve as a cost control mechanism of

the business.

2. Even the business was able to gain more profit from selling more than the standard

number of units which has resulted to a favorable variance, the business should not abuse

the factory overhead beyond the established capacity of production, because it may lead

to compromising the quality of the product.

3. To control the variance, the company should ensure that they calculate the spending more

precisely and the number of units produced because a favorable variance does not always

denote that the company can benefit from it. The variance is not due to over or under

spending or the efficiency of how overhead costs are used. It is all about the difference

between planned and actual.

4. Proper and efficient utilization of resources is necessary to avoid wastage. Since in the

business, number of quantities produced can be equate to number of quantities sold, the

business should step forward and make strategies so that they can sell more of their

product
Prepared by:

Justine Marie De Toro Jessa Ailaine D. Evangelio

BSAC 1- ACA BSAC 1- ACA

Donna Czalea Lusabia Murphy Mutia

BSAC 1- ACA BSAC 1- ACA

Rhosellie Naguicnic Christian B. Neri

BSAC 1- ACA BSAC 1- ACA

Suzfinzi Raffaello Q. Yema

BSAC 1- ACA
Discussed with:

Aerich Jude Sajulga Fatima Umpara

General Manager Finance Manager

Angela Manzano Clint John Hingania

Marketing Manager Sales Manager

Rafael Along Rizel Gonzaga

Purchasing Manager Production Manager

Gennasel Somo

Cash Custodian