QUESTION $2$

Kecur Sokmo Bakery $($KSB$)$ bakes and sells chocolate chips cookies for children. The

cookies are made using a highly standardized process. The main ingredients consist of wheat

flour, butter and sugar. The company has a standard costing and variance system in place to

control the manufacturing process. KSB employs a Purchase Manager, a Sales Manager, and

a General Manager, but recognized a need of a manager at the production level.

In September, a new production manager, Miss Lela, was recruited to in charge the whole

production process. She will get bonus based on the directly attributable variances involved

production process on top of her basic salary.

In November, during Miss Lela's $3-$month appraisal, it was observed on the whole that the

cost variances were favorable. However, the Sales Manager, Mr$.$ Matt brought to the

managements notice that the sales of the cookies was dropping significantly. The drop in

sales had an impact to the overall profit of the company.

The following is the standard cost information for the three month period.

The level of activity was aproximately the same for every month during the three month

period. The following are the variances for the period under review:

Required:

a$)$ Explain the possible causes of the unfavorable material price variances and favorable

material quantity variances.

$(8$ marks$)$

$($CLO$1$: PLO$1$:C$3)$

b$)$ Discuss whether the material price variance and material quantity is controllable by the

production manager.

$(3$ marks$)$

c$)$ The management wants to check the performance of the company in the fourth month.

The actual production was $102,500kg$ of cookies. Actual costs for the month of

December were:

Required:

Compute material price variances with the use of the above information for:

i$.$ Material price variances for wheat flour, butter and sugar.

ii$.$ Material quantity variances for wheat flour and butter.help