Managerial Accounting Case Study

This case study focuses on Jack's Gluten-Free Pizza Company, a new business venture. The assignment requires students to analyze various aspects of the business, starting with cost classification (fixed vs. variable, direct vs. indirect, product vs. period costs). Students must then recommend a suitable costing system (job order, process, or activity-based costing) for the company. A significant portion of the assignment involves break-even analysis, target profit calculations, and the preparation of a monthly profit and loss budget. Students are tasked with determining the number of pizzas needed to be sold to break even and to achieve specific profit targets. Furthermore, they must analyze the impact of an additional advertising expense on the CVP analysis and make recommendations. Finally, the assignment includes preparing a contribution margin income statement, a budget-to-actual report, and a comprehensive analysis of the business's performance in its first month of operation, along with recommendations for improvement. The case study provides detailed cost information, including supplies, labor, and overhead, allowing students to apply their knowledge of managerial accounting principles to a real-world business scenario.

Professor Delano
Managerial Accounting
Case Study
Managerial Accounting Project
Jack’s Gluten-Free Pizza Company
Facts
Jack is a veterinarian who was diagnosed with Celiac Disease at a young age. Along
with his passion for animals, he also has a passion for food, especially pizza. Every
Friday his office orders pizza from a local Italian restaurant, but the gluten-free
pizza is never very good. Since his veterinarian practice is quite successful, Jack
would like to use the proceeds from the practice to open a gourmet pizza restaurant
using his own recipe for the crust. Jack had never been interested in the operating
aspects of a business, just animals and cooking. He currently has a manager run all
business aspects of his veterinarian practice, and he would like to hire you to run his
pizza restaurant.
The facts are as follows (All costs are also included in the chart on page 4):
 Jack has incorporated the business as “Jack’s Gluten-Free Pizza Company”
and contributed $100,000 into the corporation in exchange for stock
 Jack plans to open the restaurant on January 1, 2016 and will work at the
restaurant on Saturdays and receive a salary of $250 per month
 Jack would like to train new cooks on the importance of a gluten-free kitchen.
He plans to work at least 1 day per month training employees and receive
$50 per training day.
 Jack’s brother, Sawyer, is a marketing executive and will take care of all of the
advertising for the company. He will be paid $100 per month for his services
and receive a commission of $1.00 per pizza sold.
 Jack’s mother, Elizabeth, is an accountant and will take care of all of the
bookkeeping and taxes for a reduced fee of $150 per month.
 Jack has already hired a chef and 2 part-time employees.
 The restaurant will be located in the same complex as Jack’s veterinarian
office. Since he already occupies a location within the retail suite, the
landlord is going to charge him just $1,050 per month. The location is
extremely busy and on well-travelled street.
 Because Jack insists of fresh ingredients and delivering the best product to
his gluten-free customers, all pizzas will be made to order and are
customizable for each customer.
 Selling Price Per Pizza: Jack would like your help to determine the selling
price per pizza. Please look up industry averages for the suburban Boston
areas – Since this is a teaching example, you can choose the location that
Jack’s retail suite is located. Determine a price that is supported by your
research into the location of your choice.

Professor Delano
Managerial Accounting
Case Study
Assignment
Although Jack isn’t interested in running the day-to-day aspects of his businesses, he
is very interested in how they perform. He has asked you to complete the following
tasks and report back to him before the opening of the business.
1. Cost Classification
Jack has provided you with a list of supplies and equipment that he needs to
start the business.
o Please classify the costs by behavior (fixed or variable), traceability
(direct or indirect), financial reporting (product or period) using a chart.
o For fixed costs, please identify if they are discretionary or committed.
o For product or period costs, please identify if they are direct materials,
direct labor, overhead, selling, or administrative costs.
2. Costing System
Jack’s mother, the accountant, told him about the three different types of costing
methods that organizations use to classify costs, including job order, process
costing and activity based costing.
o Which method would you recommend that Jack’s Gluten-Free Pizza
Company use? Please explain.
3. Break-even Analysis, Target Profit and Profit Planning
Jack developed a table to illustrate the costs associated with the business (pg 4).
o How many pizzas would he need to sell per month in order to break-
even?
o How many pizzas would he have to sell if he wanted to make a monthly
profit of $500, $1,000 and $2,000?
o Prepare a Monthly Profit and Loss Budget based on a desired profit of
$2,000.
o (Hint: This is one master budget that is set up similar to an income
statement – you can use the contribution margin format if you would like)
4. Alternative Expense
Jack’s brother, the advertising executive, is hounding him about running a
monthly radio ad that would cost $250 per month. Industry analysis shows this
will bring in 5% more in unit sales per month. If you decide to run the ad for one
month, how would the CVP analysis change? Would you recommend the ad?

Professor Delano
Managerial Accounting
Case Study
February 1, 2016…
Now that the business has been operating for 1 month, Jack would like to meet with
you to discuss how the business has been doing and what steps you have taken or
will take as the manager to improve business.
During the month of January, Jack performed 1 day of training and the company sold
1,500 pizzas. (Increase this by 5% in unit sales if you recommended running the
advertisement.)
5. Report Preparation
 Monthly Contribution Margin Income Statement for January
 Budget to Actual Report (Contribution Margin Format)
 Income Statement for January
6. Report Analysis
Complete an analysis of the reports that you prepared and provide your
recommendations for the business.

Professor Delano
Managerial Accounting
Case Study
TABLE 1: COST INFORMATION
Supplies Cost Standard per pizza
Pizza Oven Donated by Jack’s Father
Cash Register $10/month (3 year
contract)
Refrigerator and Other
appliances
$0 (already included in
rented space)
Gluten-Free Pizza Crust $100 for 50 crusts 1 crust
Organic Sauce $10.00 for 20 cups 1/2 cup
Organic Cheese Blend $2.00 for 2 cups 1/2 cup
Assorted Spices $18.75 for 5 lbs
($0.05/tsp)
1 tsp
Labor Cost Standard
Salary - Jack $250/month
$50/training day
Salary – Chef $2,000/month
Salary – 2 Employees $600 each /month
Marketing $100/month
$1.00/pizza
Accountant $150/month
Overhead
Phone $5/month
Utilities (Electric, Gas, and
Water)
$225/month
Rent $1050/month
Estimated Variable MOH $2.00/pizza