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

January 06, 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.

A. Materials

Existing Controls
and Accounting
Procedures Assessment/Discussion Recommendation

1. Accuracy in The business, base from the It is important for businesses to

Recording
interview, keeps record of their have a physical control over its
Materials
purchase and receipts of the materials and safeguarding its

materials every after 3 days, and inventories. Accuracy in

they also give monthly reports of recording of the purchase and

their transactions. The issuance of materials, inventory

purchasing days of the business records should document the

is Saturday and Wednesday so inventory quantities on hand,

that it can last for three days. The and cost records should provide

business also keeps inventory the data needed to assign a cost

records where inventory to inventories for the preparation

quantities on hand should be of the business’ financial

documented and is able to do statements. Since all the

physical count on their materials employees have the access to

since they need to know if they the inventory, there are high

already need to buy the materials chances that materials could be

needed for their products. misused and by having accurate

records it could avoid the

materials from

misappropriations and misuse.

This way the business will also

 find out if there are

discrepancies in the inventories

and take appropriate and abrupt

corrective action to correct the

discrepancy.

2. Quality The business is particular with The business should aldo learn
Control System
maintaining the quality of their to find their EOQ and Reorder

product thus they have keep a point in order for them to have

quality control system to assess more accurate purchasing of

whether their materials are good the materials and it will also

enough to be used in production. guide them to be cautious with

Since their inventory and their inventory in order to avoid

purchasing are consistent, they stock outs if ever they are not

are able to provide materials that able to keep inventory or buy

are still of high quality which during their assigned

makes the product more enticing purchasing days due to

for the customers. They do not unforeseen circumstances, and

have any spoilage since they are although they do not have

serving beverages which has a spoilage, it will still surely

longer time before it will spoil and reduce the possibility of

it is not easily perishable. spoilage since there is a control

of when and how much

inventory is to be purchased.

3. Controlling the .The business has already It is very important to take note
Investment in
assigned days for the purchasing or to monitor your inventory
Materials
of materials which is every every time because it will help
(Order point,
EOQ) Wednesday and Saturday of the you to be more cautious on

week. Whether or not they will when your business will reach

reach their minimum inventory, the minimum inventory. Through

they will still buy the needed having assigned days to

materials for their products during purchase every week, they are

their assigned days in order to able to avoid this kind of

really avoid having stock outs in situation. However, the business

their materials in the middle of should also be careful and know

 operation. They will not wait when to limit the things needed

anymore if all the materials are to buy. They should budge and

used. However, Since the control the materials needed to

business is still in their few buy for the next operation days.

months of operations, they don’t Maintaining an appropriate level

have the variables to use to solve of raw materials inventory is one

for their order points and the of the most important objectives

Economic quantity order (EOQ). of materials control. Thus, it is

Which goes to show that they important for businesses to have

purchase their materials every a reorder point where a

Wednesdays and Saturdays. minimum level of inventory is

determined for each type of raw

material, and inventory records

should indicate how much of

each type is on hand. An

Economic order quantity is also

helpful in establishing the time

when an order should be

placed. It also minimizes the

total order and carrying order

costs over the period of time.

4. Segregation of The Company has segregated Through proper segregation of

Duties
their duties well, and is able to do duties within a business, the

assigned the task and company will be able to

responsibilities for each and effectively control their

every one to do. Each of them materials and will also minimize

has their own function in the opportunities for

company. However, they need misappropriation of assets. The

more improvement in their roles owners should be more

as it shows that are still not sure responsible to their tasks and

of the purpose or the function of see to it that they are able to

their roles in the business and as function as a group as well as

a result, they tend to overlap individuals because they

each other’s jobs or they lack the should also avoid overlapping
 orientation of what they really and overdoing their duties as a

should do. member of the company.

Appropriate segregation of

duties helps to set bound the

opportunities of an individual

worker for misappropriation

and concealment.

B. Labor

Existing Controls
and Accounting
Procedures Assessment/Discussion Recommendation

1. Division of labor The owners have come up with The business already

an operation schedule that is implemented a penalty wherein

properly divided into the job of if a student is late or cannot be

each member. Each schedule able to attend his/her

there should be two members responsibilities shall pay with

one who will make the product an amount of P350. The

and one who will entertain the business should observe strict

customers and act as the implementation of the selling

cashier. Due to school work and schedule so that they will be

emergencies, there are times able to do their assigned

where a member cannot keep up responsibilities fairly. They

with his/her duties and ask the should have continuous

other members to cover up. communication with each other

in order for unexpected

circumstances as well, wherein

one member may not be able

to attend to his/her

responsibilities and will be able

to take his/her place so that the

operations will not stop.

 2. Accounting of The business uses an hourly Although the company's net
Labor Costs
rate plan, wherein they based it income is not negative, it is not

on the minimum wage of P300 enough to cover up the

divided by how many hours they following month’s expenses

have worked and multiply how given the amount of salaries is

many members, usually each more expensive than their rent

member earns around P750 expense. Unless they would

monthly. Through the hourly earn more on the following

rate plan, the owners who also month, we recommend that the

happened to be the employee of company should perform a

the business are paid based on piece rate plan wherein the

the numbers of hours they have wage of the worker will depend

allocated to work. The on how many products are

employees are paid the same sold. With this, even if their

hourly rate despite positions labor cost may reduce, they

held in the business. However, would earn more thus

labor cost are quite expensive maximizing the company’s

for such a small stall business profit.

which causes the business to

have net losses since the

business only sell an average of

50 pcs of iced coffee per day..

3. There is a The business included labor in In calculating the cost of

consistency in the
the computation of the Cost of product per unit it is important
treatment of labor
Goods Sold and included in the to note that all the cost
costs.
computation of overall cost per accumulated which relates to

unit. producing the product is

accounted not only to reflect

the full cost incurred per unit

but also to cover up all the

costs by the price. This way

the business will have higher

revenue.
 C. Factory Overhead

Existing Controls
and Accounting
Procedures Assessment/Discussion Recommendation

1. Indirect materials

a. Costing of The business included the Machineries which were

equipment
depreciation of each equipment included in the depreciation are

they used in their production. refrigerator and electric

heater/kettle since this is

included in the factory

overhead costs.

2. Indirect labor

a. Upholding The General Manager acts as a To improve work quality, the

on duties
supervisor of the business and general manager should not

monitors the overall progress of only evaluate the performance

the company. In order to of the business, but the

evaluate the current performance performance of the employees

of the business, she creates a as well. Employees should also

report between their target assess themselves in order to

against their actual profit for each perform better.

month.

The Purchasing Manager is Members of the business

responsible in buying or organization should always be

approving the acquisition of well-reminded of their

goods and services needed by responsibilities and tasks of the

the company and has the company in order to avoid

responsibility of choosing the conflict of duties. Furthermore,

best quality products and goods they should have strict policies

for the business at the most on absences and lateness of

competitive prices. However, one members such as penalties and

of the issues of the company is to always follow their operations

that they are doing the roles schedule.

which are not assigned/tasked to

 them since the member is not

present at that time.

3. Costing for rent The business included the heat Payment for rent includes

and light under rent expense. electricity used in production.

This is convenient for the

company, especially their costs

in terms of factory overhead.

D. Additional Information and Observation

Assessment/Discussion Recommendation

Basis of Pricing The business based its selling
their Product price on costing, per capita
consumption and through the
results of focus group
discussion. With the use of
PCC, they are actually basing
their price on the range of the
competitor’s price. The role of
their competitors is actually
relevant in this part because
they used it as a guide for how
much they are going to sell
their coffee. The business has
a fixed price of 55php for all
three flavors of their products,
even though each product has
different overall cost amounts.
Therefore, each product have
different mark-up percentage.
They don’t have a fixed mark-
up percentage because their
mark-up depends on how
We recommend the owners
to not only set price their
price according to their
competitors they should also
take into consideration all the
costs incurred that are
related to the production of
the finished goods such as
the direct materials, direct
labor and factory overhead. If
all the costs are taken into
consideration then the
business will be able to
monitor how much they have
recovered from their costs.
 much is left after deducting the
cost from the fixed selling
price. Even though, they set
their price higher than their
cost, their pricing depends
mostly on the competitor’s
price and not on the cost of the
product.
Also in their cost of product per
unit they excluded the direct
labor and factory overhead
which understates the true
value of the cost of product per
unit.

DOCUMENTATION
PRODUCT

COSTING AND PRICING

(a) DIRECT MATERIALS

Original Flavor
Ingredients:   Price
7 tsp of Lingzhi Classic ₱ 21.56
1 tsp of Bear Brand ₱ 0.73
2 tsp of Kremdensada ₱ 0.98
1 & 1/2 tsp of Liberty ₱ 1.07
16 oz cup of water ₱ 0.11
16 oz paper cup & straw ₱ 4.11
Total ₱ 28.56

DIRECT LABOR
0.63 (per minute) *
Crew 1.66 min ₱ 1.05

FACTORY OVERHEAD
Refrigerator ₱ 0.28
Electric Heater ₱ 0.09
₱ 0.37

Total Product Cost per Unit ₱ 29.98

45.49% Mark-Up ₱ 25.02
Selling Price ₱ 55.00

(b) DIRECT MATERIALS

 Vanilla Coffee
Ingredients:   Price
3 tbsp of Bear Brand Milk ₱ 6.64
3 tsp of Classic Lingzhi ₱ 9.25
1 tsp of Kremdensada ₱ 0.62
1 tsp of Liberty ₱ 0.71
6 pcs of ice ₱ 0.75
1/2 cup of hot water ₱ 0.05
1/2 cup of water ₱ 0.05
16 oz paper cup and straw ₱ 4.11
Total ₱ 22.18

DIRECT LABOR
0.63 (per minute)
Crew * 2.08 min ₱ 1.31

FACTORY OVERHEAD
Refrigerator ₱ 0.28
Electric Heater ₱ 0.09
₱ 0.37

Total Product Cost per Unit ₱ 23.86

56.62% Mark-Up ₱ 31.14
Selling Price ₱ 55.00

(c) DIRECT MATERIALS

Chocolate Flavor
Ingredients:   Price
1 tbsp of Bear Brand Milk ₱ 2.18
2 tbsp of Bear Brand Choco ₱ 4.36
4 tsp of Lingzhi Classic ₱ 12.33
6 ice cubes ₱ 0.75
16 oz paper cup and straw ₱ 4.11
Total ₱ 23.73

DIRECT LABOR
0.63 (per minute)
Crew * 2.33 min ₱ 1.47

FACTORY OVERHEAD
Refrigerator ₱ 0.28
Electric Heater ₱ 0.09
₱ 0.37

Total Product Cost per Unit ₱ 25.57

53.51% Mark-Up ₱ 29.43
Selling Price ₱ 55.00
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. Yemz

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