Edible Designs is a small producer of chocolate covered strawberries.
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. Timothy Wade, the company?s
controller, is planning to implement a standard-costing system and has
gathered considerable information on production and materials
requirements for Edible Designs? products. He believes that the use
of standard costing will allow the company to make better pricing
decisions.
Edible Designs most popular product is chocolate covered strawberries.
The strawberries are produced in 10-gallon batches and each batch
requires six quarts of strawberries. The strawberries are sorted by
hand before entering the production process. Because of imperfections
in the strawberries and normal spoilage, one quart of strawberries is
discarded for every four quarts accepted. Three minutes is the
standard direct-labor time for the sorting required to obtain one
quart of acceptable strawberries. The acceptable strawberries are
then dipped into the chocolate, dipping requires 12 minutes of
direct-labor time per batch. After dipping, the strawberries are
packaged in quart containers. Timothy has gathered the following
information from Teresa Smith, Edible Designs? cost accountant.
* Edible Designs purchases strawberries at a cost of $.80 per quart.
All other ingredients cost a total of $.45 per gallon.
* Direct labor is paid at the rate of $9 per hour.
* The total cost of material and labor required to package the
chocolate covered strawberries is $.41 per quart.
Smith has a friend who owns a strawberry farm that has been losing
money in recent years because of good crops, an oversupply of
strawberries readily available and prices that have dropped to $.50
per quart. Smith has arranged for Edible Designs to purchase
strawberries from her friend and hopes that $.80 per quart will help
her friend?s farm become profitable again.
Required:
* Develop the standard cost of direct material, direct labor and
packaging for a 10-gallon batch of chocolate covered strawberries
* As part of the implementation of a standard-costing system, Timothy
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:
- the possible causes of unfavorable material price variances and
identifies the individual(s) who should be held responsible for these
variances
- the possible causes of unfavorable labor efficiency variances and
identifies the individual(s) who should be held responsible for these
variances
* Citing the specific ethical standards of competence,
confidentiality, integrity and objectivity for management accountants,
explain why Smith?s behavior regarding the cost information provided
to Timothy is unethical. |
