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Dear John,
First and foremost kindly accept my acknowledgements. You are 1 of the best instructors i have ever heard to and would like to thank you for all your efforts.
I have a doubt in your clarification to this question.U said that the appropriate Cost Unit for Cake is either the cake itself or batch but not kg.
Just sometime back where you are explaining a case of a builder , u said houses are different and so the common denominator is square meter. Going by the same analogy, if you go to a bakery you will find cakes with different weights and they are sold based on common denominator which is their weight in Kilograms. For example in Middle east when we are ordering any birthday cakes it comes as 1kg, 3 Kg or 5 Kg pricing cake.
In light of this input your clarification has confused me that why cannot KG be a correct cost unit for Cake
Many Thanks
AmitThank you for your comments, Amit.
I take your point about the cakes, and maybe kg’s would be appropriate in the Middle East.
However, kg’s would only be appropriate if, for example, a 2kg cake cost twice as much to make (and was sold at twice the price of) a 1 kg cake.
Certainly in the UK that is not the case (for example, cakes are usually sold decorated, and different decorations have different costs). So for a company making and selling different cakes, then the cake itself would be more appropriate. If, on the other hand, they were effectively a factory making hundreds of identical cakes to be then sold to shops, then a batch may be more appropriate.
(And do note, that it was only suggestions as to what would be appropriate. If it were to be asked in the exam you would be given 4 suggestions and asked which of the 4 would be most appropriate. In the exam they are very careful in the items they choose and the choices of answers they give to avoid the ‘cake’ situation 🙂 )
Dear John,
As always i am awed by your clarity of concepts.
I would agree with you and just an additional input. In Middle east there are 2 ways in which this is managed. The normal cakes comes in 1, 2 ,3 and 5 kgs lots which are priced as per kg. for eg a 1 Kg cake costs $10 , 2 $20 and so on.
Also there are special decorated cakes which are priced Price per kg + cost depending upon selected decorations.
Thanks again for clarification and I am happy my sense of directional thinking was not very much out of way.
Cheers
AmitDear John,
On a deeper look to the options available in this case , i am guided by your coaching in u r lectures where u said that its upto a particular business unit to select the cost unit.
Can you kindly explain the concept of production run which is also given as an option in this case and also explain why that cannot be an appropriate cost unit for a cake manufacturer besides cake, batch and kg as we already discussed.
Thanks a lot
AmitRemember why we are doing the costing – it is to be able to put a value on any inventory, and/or to help in deciding on a selling price.
Depending on whether we are producing cakes in bulk and selling to supermarkets, or producing individual cakes and selling them directly, either batches, cakes or Kgs could be suitable.
However a production run (in the context of cakes) would be one baking of cakes (and there will be lots of production runs). However we don’t keep inventory of production runs and nor do we sell them (and each production run does not have to be for the same number of cakes).
Dear John Sir,
You are God Of Costing. What an amazing clarity of concepts you have got and what a phenomenal explanation you give…
I am just too Fascinated by you sir…
Thanks a ton again…
Cheers
Amit
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