ACC 202 Module 2 Project Milestone One example

Project Milestone One: Cost Behavior and a Monthly Cost Formula for a Composite Small-Batch Candle Maker

[Student Name]

Southern New Hampshire University

ACC 202: Managerial Accounting

Module Two Project Milestone One

[Instructor Name]

[Date]

The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.

Project Milestone One: Cost Behavior and a Monthly Cost Formula for a Composite Small-Batch Candle Maker

The Company and Its Relevant Range

Cedarline Candle Co. is a composite manufacturer of hand-poured soy candles sold through its own website, local gift shops and a few regional retailers. It operates from a leased workshop with two melting stations and a curing room, employs two salaried staff and pays pourers a piece rate for each candle. In the first half of 2025 it produced between 1,500 and 2,300 candles a month and sells each for 24 dollars. Within that range of 1,500 to 2,500 candles a month, the workshop, equipment and salaried staff can handle the volume without change, so the cost behavior assumptions below apply only inside it (Franklin et al., 2019).

Classifying Each Cost

Table 1 classifies Cedarline's monthly costs by behavior, with the reason for each classification.

Table 1

Monthly Cost Classification, Cedarline Candle Co.

Note. Composite figures. Classifications hold within the relevant range of 1,500 to 2,500 candles a month.

Separating the Mixed Utility Cost

Utilities include fixed service charges and a variable amount for the electricity used to melt wax and run the curing room. Table 2 shows six months of production and utility cost.

Table 2

Monthly Production and Utility Cost, January to June 2025

Note. Composite figures.

The High-Low Calculation

The high-low method uses the months with the highest and lowest activity, April and May (Datar & Rajan, 2021). Between them, production changed by 800 candles, from 1,500 to 2,300, and utility cost changed by 400 dollars, from 1,330 to 1,730 dollars. The variable utility cost is therefore 400 dollars divided by 800 candles, or 0.50 dollars per candle. Subtracting the variable portion from April's total gives the fixed portion: 1,730 dollars minus 2,300 times 0.50 dollars, or 580 dollars a month. The same result follows from May: 1,330 dollars minus 1,500 times 0.50 dollars is 580 dollars. As a check, the formula predicts January's cost at 580 dollars plus 1,800 times 0.50 dollars, or 1,480 dollars, within 4 dollars of the actual bill, and it predicts March within 7 dollars.

The high-low method is quick but relies on only two months, so an unusual month at either end could distort the result. Here the other four months fit the line closely, which gives reasonable confidence in the estimate. With more data, regression would use every month and provide a measure of how well the line fits.

The Monthly Cost Formula

Adding the variable costs from Table 1 to the variable utility rate gives total variable cost of 13.20 dollars per candle: 3.10 dollars for wax, 2.40 for fragrance, 2.75 for the jar, 0.55 for wick and label, 1.80 for piece pay, 0.90 for packaging, 1.20 for commission and 0.50 for utilities. Fixed costs total 16,130 dollars a month: rent of 4,200 dollars, salaries of 9,800, depreciation of 650, insurance of 380, software of 520 and fixed utilities of 580. Cedarline's monthly cost formula is therefore total cost equals 16,130 dollars plus 13.20 dollars times the number of candles produced and sold.

At a price of 24 dollars, each candle contributes 10.80 dollars toward fixed costs and profit, a contribution margin ratio of 45 percent. The 10.80 dollar contribution margin, not the 24 dollar price, is the number every later decision in this project will turn on. At the June volume of 1,900 candles, the formula predicts total cost of 41,210 dollars against revenue of 45,600 dollars, a profit of 4,390 dollars.

Why the Classification Matters to the Owner

The owner's current habit is to divide the month's total costs by the number of candles made, which in June gives about 21.69 dollars a candle. That figure moves every month for reasons unrelated to efficiency: in a slow month the same 16,130 dollars of fixed cost is spread over fewer candles, so the average rises, and in a busy month it falls. Using it to price a wholesale order or judge a month's performance would mislead her. The cost formula separates the two effects. It shows that each additional candle costs 13.20 dollars no matter the month, and that the fixed 16,130 dollars must be covered by contribution margin before any profit appears. With that distinction, the owner can see that a slow month is not a sign that candles have become more expensive to make, and that a discount wholesale order at, say, 18 dollars still adds 4.80 dollars per candle to profit if there is spare capacity.

Limits and Next Steps

The formula is only as good as its assumptions. It holds within 1,500 to 2,500 candles a month; a large holiday order beyond that range would require a second shift or rented storage, and fixed costs would step up. Variable costs per candle assume stable prices for wax and jars, which have risen twice in two years. The commission applies only to wholesale sales, so a shift toward the website would lower variable cost per candle. Finally, some costs treated here as fixed, such as the designer's time spent setting up custom retailer orders, are really driven by activities rather than volume, and an activity-based view could assign them more accurately to the customers who cause them (Kaplan & Anderson, 2004). Milestone Two will use the formula to find the break-even point and the volume needed to reach the owner's profit target, and to test how those figures change if wax prices or the sales mix change.

References

Datar, S. M., & Rajan, M. V. (2021). Horngren's cost accounting: A managerial emphasis (17th ed.). Pearson.

Franklin, M., Graybeal, P., & Cooper, D. (2019). Principles of accounting, volume 2: Managerial accounting. OpenStax. https://openstax.org/details/books/principles-managerial-accounting

Kaplan, R. S., & Anderson, S. R. (2004). Time-driven activity-based costing. Harvard Business Review, 82(11), 131-138.