Chocloate case study

Topics: Cost accounting, Costs, Cost Pages: 16 (6328 words) Published: December 21, 2014
Vol. 28, No. 3
pp. 637–652

American Accounting Association
DOI: 10.2308/iace-50464

Dream Chocolate Company: Choosing a
Costing System
Kip R. Krumwiede and W. Darrell Walden
ABSTRACT: This case is about a small, but real, company, Dream Chocolate (D.C.), which makes custom-labeled, high-quality candy bars for special events and advertising purposes. Like many small companies, D.C. has an inadequate costing system and needs a much better one as it starts to get bigger orders. In Part A of this case, students learn how to analyze a company’s situation, identify relevant information in a case that is presented in a less-structured format, evaluate the pros and cons of different costing approaches, recommend an approach, and suggest ways to implement it. In Part B, they develop and calculate costs based on their recommended approach. The case also helps increase students’ understanding of the applicability of various costing methods typically covered in cost and managerial accounting courses. Keywords: instructional case; cost accounting; job order costing; process costing; operation costing; activity-based costing; and accounting information systems.



ay Johnson sat back in his chair wondering about what he had just done. He accepted a special order from a national supplier of wellness products for 200,000 chocolate bars at a 20 percent discount from the usual price. It is a new type of bar and the company provided the recipe. The company also hinted about a second order for 150,000 bars if the first order was successful. Kay sighed and thought, ‘‘I hope we can make a profit on this order, because we are going to have to increase our capacity big-time to fill it. Wish I knew what the cost will be.’’ OVERVIEW OF COMPANY

Dream Chocolate (D.C.) is the major product line of Salmon River Foods, the spawn of a trip on the Middle Fork of the Salmon River in Boise, Idaho. President Kay Johnson was burned out by 30 years in the food service industry and decided to sell his business and begin anew. Quite by accident, he received a call asking if his new company Salmon River Foods would consider selling Kip R. Krumwiede and W. Darrell Walden are both Associate Professors at the University of Richmond. We thank David E. Stout, Shannon L. Charles, and Nick Fessler for helpful comments. We also thank Kay Johnson, owner of Dream Chocolate, for his support throughout the project. This case is based on a real company, but quantitative information used in the case is disguised for confidentiality purposes.

Published Online: March 2013


Krumwiede and Walden


chocolate bars. Kay’s son Rob was employed by a German company and was frequently flying to Europe and returning with wonderful chocolate as family gifts. Kay wondered how he could produce European-style chocolate (no waxes or preservatives) in the U.S. With his son’s help, he found a supplier in Germany who would ship to the U.S. Kay purchased a chocolate factory in Boise and began production in April 2002. Kathleen Wasson, Vice President, oversees the creative arts department and assists Kay in managing the plant.

What started with one basic milk chocolate bar has grown to include two milks, two darks, two semi-sweets, one white, one bittersweet, and other adaptations involving various ingredients such as coffee, berries, and fresh mint. The chocolate is wonderful, but the real charm of the product is its custom labeling. For individual snacking, D.C. bars are sold in specialty markets, fine gift stores, and other locations. They are also available for corporate events and celebrations, such as weddings and birthdays. The website at provides more information about its various product offerings.

Competitive Pressures
D.C. is a small company trying to survive in an industry with many players. Competition can come from the many custom chocolate bar providers on the Internet...

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