Kristen's Cookie Company

2/19/2019 Kristen’s Cookie
Company
WACC
Contents
Introduction: ..................................................................................................................................... 2
Production Process............................................................................................................................ 2
Process Flow ...................................................................................................................................... 2
Labor Cost ......................................................................................................................................... 3
Pricing & Profit ................................................................................................................................. 4
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Introduction:
This case is basically about Kristen and her roommate who are planning to launch a cookie
company, which will sell fresh baked cookies to students. Company will primarily operate
late at night. A basic production process will answer following queries: price for each cookie,
what equipment to order, how many orders to accept and evaluate whether the business can
be profitable. The primary purpose of this case is to analyze the proposed operating system,
develop flow diagram, calculate throughput and cycle time and propose recommendations
that can improve the operating system.
The business concept of the company is based on unique factors that will set the company
apart from competing products. Firstly, customer will be free to choose ingredients of the
cookie. Secondly, company will only bake cookies once it receives the order, as a result,
cookies will always be hot and fresh when delivered to customer. Lastly, the company
provides easy accessibility to the students.
Production Process
The production process is explained below:
 Kristen’s roommate will receive the order through email
 Kristen’s roommate will reply to that email and process the order to Kristen
 Kristen will mix the ingredient in a bowl. Kristen will spoon the mixture on oven tray
 Cookie tray will be put in Oven for baking
 Cookies will be allowed to cool before removing them from tray
 Pack cookies in a box
 Take payment from the client
Process Flow
The process flow chart is given in exhibit 1. Moreover, exhibit 2 provides cycle time for each
activity.
As per the exhibit 1, it will take 27 minutes to process one order. However, it will take 26
minutes if email processing time is excluded from calculation. For future reference, 1-minute
time for email processing will be excluded from calculations.
The cycle time diagram given in exhibit 3, clearly shows that 2 batches will take 36 minutes
to complete. Therefore, second process takes 36-26= 10 minutes. Subsequently, each process
after first batch takes 10 minutes. For first hour only 4 orders can be processed. However,
next 3 hours can take 3*6 orders. Summing up, if process flow works continuously then 22
orders can be processed.
MAXIMUM Orders in 4 hours = 22 orders.
22*12/ (60*4) = 1.1 cookie/ minute
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Labor Cost
Following set of actions require valuable input from labor and thus must be considered as
valuable labor time.
 Mixing – 6 minutes
 Spooning – 2 minutes
 Packing – 2 minutes
 Payment – 1 minute
Moreover, setting time for oven thermostat is not taken into consideration as it takes
negligible time and is not considered as part of analysis in case.
Exhibit 2 further mentions the resources playing these parts.
As 3 dozen of cookies can be mixed at once in the bowl, labor time will further reduce to 16
minutes if 2 dozen cookies are ordered and 21 minutes if 3 dozen cookies are ordered.
Considering, labor cost is 10 dollars per hour, we can calculate labor cost for dozens of
cookies for all 3 cases.
Case 1: 1 dozen Order
Labor cost for 11 minutes = 11*10/60 = $1.833
Material cost = $0.7
Total cost = $2.53
Potential discount = $0
Case 2: 2 Dozen Order

Labor cost for 16 minutes = 16*10/60 = $2.67 for 2 dozen
Labor cost for 1 dozen = $1.335
Material cost for 1 dozen = $0.7
Material cost for 2 dozen = $0.7*2 = $1.4
Total cost per dozen = $0.7 + $1.335 = $2.035
Potential discount = 2.53-2.035 = $0.495
Case 3: 3 Dozen Order

Labor cost for 21 minutes = 21*10/60 = $3.5 for 3 dozen
Labor cost for 1 dozen = $3.5/3 = 1.167
Material cost for 1 dozen = $0.7
Material cost for 2 dozen = $0.7*3 = $2.1
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Total cost per dozen = $0.7 + $1.167 = $1.867
Potential discount = 2.53-1.867 = $0.663
It is quite clear from above analysis that Kristen and her roommate can afford to give
discounts to customers ordering 2 or 3 dozen of cookies. Total cost reduces as order
increases; however, this phenomenon might not hold true in case 4 and more orders are
generated, as material and labor cost will increase.
Moreover, timer required will remain same. For instance, three different orders will take as
much time as a single order for 3 dozen cookies. In later case, only cost is reduced due to
lower labor hours/cost.
In addition, this setup requires at least 2 oven trays so Kristen can setup next order when
other order is being baked in the oven. However, adding another mixture will not help the
cause as bottle neck is created after mixture process. All processes apart from mixture can
accommodate 1 dozen order at a time. Ideally, 3 trays are required to cater for 3 dozen
cookies order, as mixing can accommodate ingredients for 3 dozen cookies.
Pricing & Profit

As seen from previous section that maximum cost for producing dozen cookies is $2.53.
Therefore, a cost of $3.40 is decided for this project. Further breakdown for profit calculation
is given below.
 Price - $3.4/dozen
 Cost - $2.53/dozen
 Work - 4 hours/night
 Production – 22 dozen/night (max orders in 4 hours)
 Revenue - $74.8 (22 dozen)
 Cost – 55.66 (22 dozen)
 Profit - $19.14 (22 dozen)
 Profit (Monthly) – $574.2
 Profit (Yearly) - $6986
Recommendations:
Operating capacity can be improved by adding another oven. For instance, as per exhibit 3,
labor is idle between time 16 and 23. This indicates a lag of 7 minutes. Within this time, oven
is busy for 2 minutes and next order cannot be put for baking. Therefore, by adding another
oven, this lag can be utilized, and another order can be initiated. In case of first two orders, if
orders are different, it will take 34 minutes to complete two orders, as compared to 36
minutes with 1 oven. This means, after first order, it will take 8 minutes to complete rest of
the orders as cycle time has reduced.
Another consideration for buying an oven is financing. Kristen and her friend can continue to
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operate for some time before they earn enough profit to buy another oven. As shown earlier,
company can earn enough profits ($6986) within a year to buy an oven.
Lastly, another labor can be added to reduce load on Kristen. Kristen is currently putting in 8
hours of labor work out of 11 in a dozen cookie order. By hiring another labor, the operating
cycle can further be improved. However, this can only happen if company is getting enough
orders to run their operating cycle continuously during work hours.
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5 minutes
Receive online Remove and
Pack in box
order cool
10 minutes 2minutes
Read and reply

Bake cookies Payment
to that email
1 minutes 2 minutes 1 minute
Ingredients Spoon cookies

mixed in a bowl on the tray
6 minutes
Exhibit 1: Process Flow
Exhibit:2
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Exhibit 3: Cycle time diagram
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2/19/2019 Kristen’s Cookie

Case 2: 2 Dozen Order

Case 3: 3 Dozen Order

Pricing & Profit

Read and reply

1 minutes 2 minutes 1 minute

Ingredients Spoon cookies

Exhibit 1: Process Flow

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