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Tastee Fruit Company: Standard Cost

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 company to make better pricing decisions. TasteeFruit's most popular product is raspberry sherbet. The following information is provided:

- The sherbet is produced in 12 gallon batches
- Each batch requires 6 quarts of good raspberries
- The fresh raspberries are sorted by hand before entering the production processes
- Because of imperfections in the raspberries and normal spoilage, 1 quart of berries is discarded for every 4 quarts accepted.
- Three (3) minutes is the standard direct-labor time for the sorting required to obtain 1 quart of acceptable raspberries.
- The acceptable raspberries are then blended with 12 gallons per batch of the other ingredients. Blending requires 12 minutes of direct-labor time per batch.
- After blending, the sherbet is packaged in one quart containers. Wakefield has gathered the following information from Teresa Adams, TasteeFruit's cost accountant. TasteeFruit purchases raspberries at a cost of $0.85 per quart. All other ingredients cost a total of $0.45 per gallon. Direct labor is paid at the rate of $9 per hour. The total cost of material and labor required to package the sherbet is $0.42 per quart. Adams has a friend who owns a berry farm that has been losing money in recent years. 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 $0.85 per quart will help her friend's farm become profitable again.

1. Develop the standard cost of direct material, direct labor and packaging for a 12 gallon batch of raspberry sherbet.

2. 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 addresses the following:
a. The possible causes of unfavorable material price variances and identifies the individual(s) who should be held responsible for these variances.
b. The possible causes of unfavorable labor price variances and identifies the individual(s) who should be held responsible for these variances.

3. Citing the specific ethical standards of competence, confidentiality, integrity and objectivity for management accountants, explain why Adam's behavior regarding the cost information provided to Wakefield is unethical. (See the Appendix to Chapter 1 for these ethical standards.)

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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 company to make better pricing decisions. TasteeFruit's most popular product is raspberry sherbet. The following information is provided:

- The sherbet is produced in 12 gallon batches
- Each batch requires 6 quarts of good raspberries
- The fresh raspberries are sorted by hand before entering the production processes
- Because of imperfections in the raspberries and normal spoilage, 1 quart of berries is discarded for every 4 quarts accepted.
- Three (3) minutes is the standard direct-labor time for the sorting required to obtain 1 quart of acceptable raspberries.
- The acceptable raspberries are then blended with 12 gallons per batch of the other ingredients. Blending requires 12 minutes of direct-labor time per batch.
- After blending, the sherbet is packaged in one quart containers. Wakefield has gathered the following information from Teresa Adams, TasteeFruit's cost accountant. TasteeFruit purchases raspberries at a cost of $0.85 per quart. All other ingredients cost a total of $0.45 per gallon. Direct labor is paid at the rate of $9 per hour. The total cost of material and labor required to package the sherbet is $0.42 per quart. Adams has a friend who owns a berry farm that has been losing money in recent years. 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 $0.85 per quart will help her friend's farm become profitable again.

1. Develop the standard cost of direct material, direct labor and packaging for a 12 gallon batch of raspberry sherbet.

2. 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 addresses the following:
a. The possible causes of unfavorable material price variances and identifies the individual(s) who should be held responsible for these variances.
b. The possible causes of unfavorable labor price variances and identifies the individual(s) who should be held responsible for these variances.

3. Citing the specific ethical standards of competence, confidentiality, integrity and objectivity for management accountants, explain why Adam's behavior regarding the cost information provided to Wakefield is unethical. (See the Appendix to Chapter 1 for these ethical standards.)

Standard Cost for 12 Gallons
Quantity Price Total Note
Direct Materials:
Raspberries 7.5 $0.85 $6.38 Each batch requires 6qt of good
raspberries, and normal shrinkage is 1 qt
for every 4 processed
Other Ingredients 12 $0.45 $5.40
Total Direct Materials $11.78
Direct Labor:
Sorting 18 $0.15 $2.70 3 minutes per good quart of raspberries,
labor rate is per minute equivalent of $9
per hour.
Blending 12 $0.15 $1.80 12 minutes labor per batch
Total Direct Labor $4.50
Packaging 48 ...

Solution Summary

The standard cost of direct material, direct labor and packaging for a 12 gallon batch of raspberry sherbet is developed.

$2.19