Week 5 Individual Assignment
February 20, 2012
Week 5 Individual Assignment
Problem Set 1.
TasteeFruit Company is a small producer of fruit-flavored frozen desserts. For many years, its products have had strong regional sales on the basis of brand recognition. However, other companies have begun marketing similar products in the area, and price competition has become increasingly important. John Wakefield, the company’s controller, is planning to implement a standard-costing system and has gathered considerable information on production and materials requirements for TasteeFruit’s products. He believes that the use of standard costing will allow the ...view middle of the document...
Because of good crops, an oversupply of raspberries has been available, and prices have dropped to $0.50 per quart. Adams has arranged for TasteeFruit to purchase raspberries from her friend and hopes that $0.80 per quart will help her friend’s farm become profitable again.
a) Develop the standard cost of direct material, direct labor, and packaging for a 10 gallon batch of raspberry sherbet.
b) As part of the implementation of a standard-costing system, Wakefield plans to train those responsible for maintaining the standards in the use of variance analysis. He is particularly concerned with the causes of unfavorable variances. As his assistant, prepare a page for a company training document that discusses the following:
1. The possible causes of unfavorable material price variances and identifies the individual(s) who should be held responsible for these variances.
2. The possible causes of unfavorable labor efficiency variances and identifies the individual(s)
c). Citing the specific ethical standards of competence, confidentiality, integrity, and objectivity for management accountants, explain why Adams’s behavior regarding the cost information provided to Wakefield is unethical. (See the Appendix to Chapter 1 for these ethical standards.)
PROBLEM SET 1 SOLUTION
Part A. Standard Cost
| Quantity | Price | Total |
Direct Materials: | | | |
Raspberries | 7.5 | $0.80 | $6.00 |
Other Ingredients | 10 | $0.45 | $4.50 |
Total Direct Materials | | | $10.50 |
Direct Labor: | | | |
Sorting | 18 | $0.15 | $2.70 |
Blending | 12 | $0.15 | $1.80 |
Total Direct Labor | | | $4.50 |
Packaging | 40 | $0.41 | $16.40 |
Total Standard Cost | | | $31.40 |
Direct materials per batch: 6 quarts accepted raspberries equals 7.5 quarts raspberries at $0.80/quart = $6.00. All other ingredients cost a total of $0.45. At $0.45 x 10 gallons = $4.50. Total direct materials is $6.00 + $4.50 = $10.50.
Direct labor cost is 3min sorting/quart x 6 quarts = 18 min. Labor is paid at $9.00/hr. That breaks down to $0.15/minute. 18min x $0.15 = $2.70. Blending requires 12 minutes of direct labor which is 12 x $0.15 = $1.80. Total direct labor is $2.70 + $1.80 = $4.50.
Packaging cost is $0.41/quart. 10 gallons at 4 quarts/gallon = 40 gallons. 40 gallons x $0.41= $16.40.
Total standard cost = total direct materials + total direct labor + packaging. So $10.50 + $4.50 + $16.40 = $31.40.
A product’s standard cost is the total of what it should cost to make the product. At the beginning of each month a budget is prepared using standard costs and estimated production quantities. At the end of the month a variance report is prepared to compare the estimated quantity budget with the actual quantities. The variance report shows how well they did at achieving their budgeted goals. A favorable variance will show that actual costs were less than budgeted costs. An unfavorable variance will...