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    TasteeFruit Co: Development of standard costs; causes of variances

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    Part V Evaluating and Managing Performance

    TasteeFruit Company is a small producer of fruit-flavored frozen desserts...


    a. Develop the standard cost of direct material, direct labor, and packaging for a 10-gallon batch of raspberry sherbet.

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    Direct materials per batch
    6 quarts accepted raspberries mean 7.5 quarts raspberry's at 0.8= $6 (Remember for every 4 quarts of raspberry selected one quart of raspberry is rejected.
    Other ingredients are @ 0.45 per gallon, so for 10 gallons we have $4.5
    This gives us a direct materials cost of $10.50. STANDARD COST

    Direct labor cost is
    Raspberry acceptances 3 x 6 x 15 remember $9 per hour amounts to 0.15 per minute. $2.7
    Blending 12 X 15 amounts to $1.8.
    If we add this to the direct materials cost we get a total of $15.0.
    Packaging cost is $.41 per quart. There are four quarts in a gallon and so we have $1.64 per gallon and X 10 that is $16.4 per batch. STANDARD COST.
    If we add this to the direct materials and labor cost we get a total standard cost of $21.4.

    A product's standard cost is what it should cost to make the product. At the start of each month a production budget is prepared, using standard costs and estimated production quantities. At the end of each month a variance report is prepared to compare the production budget with the actual quantities and costs of production.

    The variance report tells TasteFruit and its managers how well they did at achieving their budget goals. A favorable variance shows that actual costs are less than budgeted (standard) costs. An unfavorable variance is just the opposite - actual costs are greater than budgeted costs.

    By using a budget the management team can estimate their future costs and cash needs, plan production, schedule employees, coordinate materials purchases, reduce waste, increase production efficiency and meet shipping deadlines. Variances help the managers identify specific areas where they came in either over or under budget. They will try to repeat their successes and eliminate their failures. Each month they hope to become a little more efficient.

    The budgets will be used to evaluate managers. Their annual bonuses will depend on how well they meet their budget goals. Managers who consistently produce unfavorable variances will probably be replaced. We ask a few questions and answer them by using relevant variances. How well did management (managers) do:
    ? buying and using materials to make products?
    ? scheduling employee time and motivating employees to be efficient?
    ? controlling factory overhead costs?
    1. Total Materials Variance
    1. Materials Price Variance
    2. Materials Quantity Variance
    2. Total Labor Variance
    1. Labor Rate Variance
    2. Labor Efficiency Variance
    3. Variable Overhead Variance
    4. Fixed Overhead Variance

    Variances and Standard Costs are entered into the accounting records using journal entries. ...

    Solution Summary

    In a 1673 word solution, the subject of standard costs and variances is well developed for understanding about the direct subject, but also possible effects for the organization.