Reference no: EM132526352

Sweet Marian is a bakery that provides frozen cakes to retail grocery stores. Sweet Marian produces numerous types of cakes and charges $4.50 per cake, including delivery and regardless of the type of cake. A specialty cake line, "Marian's Moist," has been gaining popularity lately because these cakes are so moist they "melt in your mouth." Sweet Marian's accounting system computes the cost of cakes by summing the total of all raw materials, direct labor costs and overhead incurred each week and dividing it by the number of cakes produced. SG&A costs are reported in total whenever GAAP financial statements are prepared at the end of a month, quarter, or year.

Sweet Marian's profit has been decreasing lately. The company has hired you as a consultant to help it determine how to stop their declining profits. You have toured the bakery and noticed the following:

a) The Marian's Moist line of cakes require a quick-freeze process to maintain their moisture. The quick freeze process requires using special equipment that must be precisely calibrated and charged with gasses before each batch of cakes is run through the system.

b) Some cakes require extensive hand decorating whereas most require simple icing.

c) Sweet Marian has recently landed a new upscale food chain as a customer. In order to entice the customer, Sweet Marian agreed to stock the cakes on the customer's display cases in each store as part of the delivery service. For other customers Sweet Marian only delivers the cakes to the customer's warehouse.

Question 1: BRIEFLY provide an overall critique (in bullet point format) of the current costing system and how this may relate to the declining profits.

Question 2: BRIEFLY describe recommendations and/or any changes you would make to the accounting system for each of the items noted above (i.e., your answers below should correspond with the items labeled a, b, and c in the problem