P $13-9$: Western Sugar

Western Sugar processes sugar beets into granulated sugar that is sold to food companies. It uses

Actual Results Compared with Standard

a standard cost system to aid in cost control and performance evaluation. To compute the

standards for next year, the actual expense incurred by expense category is divided by the bushels of sugar

beets processed to arrive at a standard cost per bushel. These per$-$bushel standards are then increased by

the expected amount of inflation forecast for that expense category. This year, Western Sugar processed

$63$ million bushels of beets. The accompanying table calculates next year's standard costs. Senior management was not surprised at the small variances for labor and sugar beets. The processing

plant has very good operating controls, and there had been no surprises in the sugar beet market or in the

labor market. Initial forecasts proved to be good. Management was delighted to see the favorable total

overhead variance $($ $$1,090F=$$$1,011U+$$$2,101F).$ Although variable overhead was over budget, fixed

overhead more than offset it$.$ There was no major change in the plant's production technology to explain

this shift $($such as increased automation$),$ so senior management was prepared to attribute the favorable

total overhead variance to better internal control by the plant manager.

Required:

a$.$ What do you think is the reason for the overhead variances?

b$.$ Is it appropriate to base next year's standards on last year's costs?