Seth Technologies manufactures culture mediums that biotech and pharmaceutical research labs use to grow viral and bacterial specimens. They have perfected a specialized culture, PETR82 for a particular strain of bacteria. To produce the PETR82 culture requires three chemical compounds: A213, D473, and F675. Seth held none of these three compounds prior to manufacturing its first batch of PETR82. Before manufacturing PETR82, Seth purchased the following quantities of each of the three chemical compounds:

Seth uses a standard cost system for both planning purposes and to assess the manufacturing and purchasing managers' performance. The following data summarize the standard cost data developed during the analysis of the decision to manufacture PETR82.

After producing the first batch of PETR82, the standard costing system reports the following data:

Required:
a. Write a memo to management explaining what this report says, what they should learn from this report, and its key takeaways.
b. Write a second memo to Seth senior management explaining what is good and/or bad in Seth's use of standard costing as applied to the three chemicals used to produce PETRA82. In particular, do you recommend any changes in their standard costing methodology?

Transcribed Image Text:

A213 F675 D473 2,000 1,300 Actual quantity purchased Actual cost 700 $23,000 $14,700 $49,400 A213 D473 F675 Standard price Standard quantity $11.00 1,800 $23.00 400 $35.00 900