Computation of various variances.
Cold King Company is a small producer of fruit flavored frozen desserts. For many years, its products have had strong regional sales because of brand recognition: However, other companies have begun marketing similar products in the area, and price competition has become increasingly important. Janice Wakefield, the company's controller, is planning to implement a standard cost system for Cold King's products. Janice believes that the use of standard costs will allow the company to improve cost control, make better pricing decisions, and enhance Strategic Management.
Cold King 's Most popular product is rasberry sherbert. The sherbert is produced in 10 gallon batches, each of which requires 6 quarts of good rasberries and 10 gallons of other ingredients. The rasberries are sorted by hand before they enter the production process. Because of spoilage one quart of berries is discarded for every 4 accepted. The standard direct labor time for sorting to obtain one quart of acceptable rasberries is 3 minutes. The acceptable rasberries are then blended with the other ingredients; bending requires 12 minutes of direct labor time per batch. After Blending, the sherbert is packed into court containers. The following price information has been gathered.
Cold King Purchase's rasberries for $4.00 per quart. All other ingredients cost $2.25 per gallon.
Direct Labor is paid at a rate 0f $15.00 dollars per hour.
The Total package cost (labor and materials) for the sherbert is $0.50 per quart.
1) Develop the standard cost for the direct cost components of a 10 gallon batch of rasberry sherbert. For each direct cost component, the standard cost should Identify the following:
a. Standard Quantity
b. standard rate
c. standard cost per batch
2) As part of the implantation of a standard cost system at Cold King, Janice plans to train those responsible for maintaining the standards to use variance analysis. She is particularly concerned with the causes of unfavorable variance
a. Discuss the possible causes of unfavorable materials price variances, identify the individuals who should be held responsible for them, and comment on the implications of these variances on strategic cost management.
b. Discuss the possible causes of unfavorable labor efficiency variances; identify the individuals who should be held responsible for them, and comment on the implications of these variances on strategic cost management.