Paul Golding and his wife, Nancy, established Crunchy Chips in $1938.$ Over the past $60$ years, the company has established distribution channels in $11$ western states, with production facilities in Utah, New Mexico, and Colorado. In $1980,$ Paul$$s son, Edward, took control of the business. By $2011,$ it was clear that the company$$s plants needed to gain better control over production costs to stay competitive. Edward hired a consultant to install a standard costing system. To help the consultant establish the necessary standards, Edward sent her the following memo:$$To: From: Subject: Date:

Diana Craig, Certified Management Accountant

Edward Golding, President, Crunchy Chips

Description and Data Relating to the Production of Our Plain Potato Chips September $28,2011$

The manufacturing process for potato chips begins when the potatoes are placed into a large vat in which they are automatically washed. After washing, the potatoes flow directly to an auto$-$ matic peeler. The peeled potatoes then pass by inspectors, who manually cut out deep eyes or other blemishes. After inspection, the potatoes are automatically sliced and are dropped into the cooking oil. The frying process is closely monitored by an employee. After the chips are cooked, they pass under a salting device and then pass by more inspectors, who sort out the unacceptable finished chips $($those that are discolored or too small$).$ The chips then continue on the conveyor belt to a bagging machine that bags them in one$-$pound bags. After bagging, the bags are placed in a box and shipped. The box holds $15$ bags.

The raw potato pieces $($eyes and blemishes$),$ peelings, and rejected finished chips are sold to animal feed producers for $$0\mathrm{.}16$ per pound. The company uses this revenue to reduce the cost of potatoes; we would like this reflected in the price standard relating to potatoes.

Crunchy Chips purchases high$-$quality potatoes at a cost of $$0\mathrm{.}245$ per pound. Each potato averages $4\mathrm{.}25$ ounces. Under efficient operating conditions, it takes four potatoes to produce one $16-$ounce bag of plain chips. Although we label bags as containing $16$ ounces, we actually place $16\mathrm{.}3$ ounces in each bag. We plan to continue this policy to ensure customer satisfaction. In addition to potatoes, other raw materials are the cooking oil, salt, bags, and boxes. Cooking oil costs $$0\mathrm{.}04$ per ounce, and we use $3\mathrm{.}3$ ounces of oil per bag of chips. The cost of salt is so small that we add it to overhead. Bags cost $$0\mathrm{.}11$ each and boxes $$0\mathrm{.}52$ each.

Our plant produces $8\mathrm{.}8$ million bags of chips per year. A recent engineering study revealed that we would need the following direct labor hours to produce this quantity if our plant operates at peak efficiency:

Raw potato inspection Finished chip inspection Frying monitor

Boxing

Machine operators

$3,20012,0006,30016,6006,300$