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Three Dog Bakery

"Going to the dogs" has been good for Mark Beckloff and Dan Dye. Back in 1989, they founded the first bakery just for fourlegged canine friends with little more than the desire to satisfy the finicky palate of their beloved 114-pound, deaf Great Dane, Gracie. The small venture has grown from a single store in downtown Kansas City to more than 40 locations worldwide, including Japan and Korea. Their dog treats are made from
wholesome ingredients such as flour, eggs, carrots, spinach, peanut butter, and carob, and have clever names such as Rollovers, Pup Tarts, Scottie Biscottis, and Great Danish. Some treats are even frosted with honey-yogurt icings and decorated with colorful, edible flourishes. Special-occasion carrot or carob cakes can be personalized by an in-store pastry chef. The company regularly updates its 100+ product line to entice doglovers
everywhere back to the stores again and again. Selling prices range from a few cents for a small biscuit to more than $20 for a special-order cake. Three Dog Bakery has an 80,000-square-foot warehouse in Kansas City, containing manufacturing, distribution, and corporate offices, that prepares 70% of the goods sold. Except for slow summer months, the manufacturing operation runs 24 hours a day, 7 days a week, producing baked biscuits and carob-dipped items that can pack and ship well. There is one main assembly line with stations for mixing ingredients, mechanized cutting of shapes, extruding doughnut-shaped biscuits, placing biscuits on baking sheets, baking in ovens, cooling,
carob-dipping (for selected biscuits), hand-packing into trays or containers, shrink-wrapping, and boxing. Most trays hold 12 specialty biscuits that are hand-packed. A conveyer belt is used for automated packing of small biscuits into 7-ounce tubs.
Employees are cross-trained to perform multiple assembly-line functions and can work on every type of product produced at the plant. For the remaining 30% of finished goods, each store has a specially outfitted kitchen used for preparing cakes, brownies, tarts,
and other delicate or frosted items. Prepackaged mixes created back at the production facility are used to assure consistent quality across all stores. The retail outlets also sell nonfood products such as bowls, leashes, books, mugs, and T-shirts. Some stores
even host "yappie hours" and in-store birthday parties for dog socialization. Customers don't have to visit a Three Dog Bakery to enjoy the treats, however. The company has a whimsicalWeb site atwww.threedog.com that is home to the "dogalog" (well, it can't
be called a "cat-alog," can it?). The site features all kinds of treats available for immediate shipping and accounts for 10% of the company's business now. In addition to its retail and e-commerce channels, Three Dog Bakery places heavy emphasis on its
expanding wholesale business. The products were originally offered through national chains, such as PetsMart and Target, but are now finding success with high-end grocery stores that have lost much of their pet business to "big box" specialty pet stores
and want a higher-end quality product to offer their shoppers. EvenWal-Mart can't ignore the appeal of Three Dog Bakery products. Dog lovers can find Lick 'n Crunch Cookies on the shelves there. Annual revenues exceed $20 million for this privately held
company. As for the pet market itself, there are more than 60 million pet dogs in the United States alone, with nearly every owner buying anywhere from one to five packages of treats per month. Two-thirds of pet owners give their pets gifts, more than half give Christmas presents, and 25% give birthday gifts. Pet owners spend in excess of $20 billion each year in an industry that includes animal products, food, and services.
Owners who spend more than $300 per year on their dogs tend to be younger, more affluent, married, and have no children.

Q U E S T I O N S
1. To what cost objects could Three Dog Bakery trace its costs?

2. Classify the following cost items as direct (D) or indirect (I), and fixed (F) or variable (V) with respect to the production department (you will have two answers for each item?D
or I; F or V):

Cost Item D or I F or V
a. Salary of the production department manager who oversees manufacturing
b. Salaries of founders Dan Dye and Mark Beckloff
c. Cardboard trays used to package sets of 12 specialty biscuits
d. Salary of the Web graphics designer who prepares the online dogalog illustrations and layout
e. Annual maintenance service agreement for the conveyer belt
f. Wages paid to assembly line workers who mix Scottie Biscotti ingredients in batches
g. Utilities (water, electricity, waste) for the entire Kansas City warehouse
h. Cost of flour, eggs, and honey-yogurt icing for the Pup Tarts

3. What sectors?manufacturing, merchandising, or service?does Three Dog Bakery operate in? Why are they classified this way?

4. When Wal-Mart purchases Lick 'n Crunch Cookies for sale in its stores, is the purchase considered a period cost or an inventoriable cost? Why? What costs can Wal-Mart include as part of the purchase cost?

Solution Summary

The posting has the solution for the Three Dog Bakery Video case

$2.19