Developing Standard Costs ColdKing Company is a small producer of fruit-flavored frozen desserts. For many years, Cold- King’s products have had strong regional sales oa the basis of brand recognition; however, other companies have begun marketing similar products in the area, and price competition has become increasingly intense. John Wakefield, the company’s controller, is planning to implement a standard cost system for ColdKing and has gathered considerable information from his co-workers on production and material requirements for ColdKing’s products. Wakefield believes that the use of standard costing will allow ColdKing to improve cost control and make better pricing decisions. ColdKing’s most popular product is raspberry sherbet. The sherbet is produced in 10-gallon batches, and each batch requires 6 quarts of good raspberries. The fresh raspberries are sorted by hand before they enter the production process. Because of imperfections in the raspberries and normal spoilage, 1 quart of berries is discarded for every 4 quarts of acceptable berries. Three minutes is the standard direct labor time for the sorting that is required to obtain 1 quart of acceptable raspberries. The acceptable raspberries are then blended with the other ingredients; blending requires 12 minutes of direct labor time per batch. After blending, the sherbet is packaged in quart containers. Wakefield has gathered the following pricing information:

(a)        ColdKing purchases raspberries at a cost of $0.80 per quart. All other ingredients cost a total of $0.45 per gallon of sherbet.

(b)        Direct labor is paid at the rate of $9.00 per hour.

(c)        The total cost of direct material and direct labor required to package the sherbet is $0.38 per quart.

Required:

1.         Develop the standard cost for the direct cost components (materials, labor, and packaging) of a 10-gallon batch of raspberry sherbet The standard cost should identify the standard quantity, standard rate, and standard cost per batch for each direct cost component of a batch of raspberry sherbet.

2.         As part of the implementation of a standard cost system at ColdKing, John Wakefield plans to train those responsible for maintaining the standards on how to use variance analysis. Wakefield is particularly concerned with the causes of unfavorable variances.

(a)        Discuss possible causes of unfavorable direct materials price variances and identify the individual(s) who should be held responsible for these variances.

(b)        Discuss possible causes of unfavorable direct labor efficiency variances and identify the individual(s) who should be held responsible for these variances.