Question
Pastry Tastes bakes and sells a variety of cheesecake cupcakes. The main ingredients consist of cream cheese, butter and sugar. The company has a standard
Pastry Tastes bakes and sells a variety of cheesecake cupcakes. The main ingredients consist of cream cheese, butter and sugar. The company has a standard costing and variance system in place to control the production process. Management has observed that the sale of the cupcakes was decreasing significantly. This decrease in sales has impacted the overall profitability of the company.
The following is the standard cost information to prepare the cupcakes.
| $ |
2.70 kg of cream cheese @ $0.8 per kg | 2.16 |
0.15 kg of butter @ $4 per kg | 0.60 |
3.30 kg of sugar @ $0.50 per kg | 1.65 |
Total cost of production of 1 kg of chocolate cake | 4.41 |
Actual production was 102,500 kg of cupcakes. Actual costs incurred were:
| $ |
246,000 kg of cream cheese | 209,100 |
14,700 kg of butter | 63,210 |
366,000 kg of sugar | 175,680 |
The companys standard labour rate was $45 per unit, and each unit should take 3 hours to make. However, during the year, the standard labour cost was revised. The labour rate was reduced to $14 per hour, and the revised labour time was 4.5 hours per unit. In the first month after revision, the budgeted production was 10,000 units but only 8,000 units were actually produced. These took 24,300 hours of labour time, which cost $352,350.
Required:
(a) Calculate the material price, mix and yield variances. (10 marks)
(b) Calculate the labour rate, efficiency planning and operational variances. (4 marks)
(c) Identify three standards and explain the impact they each have on employee behavior. (6 marks)
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