Raging Sage Coffee is a franchise that sells cups of coffee from a cart in shopping centers. A computerized standard costing system is provided as a part of the franchise package. A portion of the standard cost data follows.

In its first month of operation, the Philadelphia franchise recorded the following data:
Coffee sold ............8,260 cups
Coffee beans used ......... 224 lbs
Coffee beans purchased ...... 240 lbs
Cost of coffee beans purchased ... $1,800
Clerk/brewers’ total hours ..... 600 hrs
Clerk/brewers’ total wages ..... $6,000
The company’s policy is to record materials price variances at the time materials are purchased.

REQUIRED
A. Are direct labor hours for the cart most likely fixed or variable? Explain.
B. Given your answer to part (A), should a direct labor efficiency variance be calculated? Why or why not?
C. Calculate the direct materials price and efficiency variances.
D. How many cups of coffee did the franchise owners expect to sell this period? Compare this estimate to the amount actually sold.
E. Provide possible explanations for the drop in sales.
F. Suppose the clerks/brewers currently receive a bonus based on their ability to control costs as measured using cost variances. Recommend a bonus system that might help the owners contain costs but also increasesales.

Transcribed Image Text:

Coffee beans Clerk/brewer Price $6 per lb $10 per hr Quantity 0.04 lbs per cup 0.05 hr per cup