Question
The Cake Factory uses a standard costing system in order to promote efficiency in its giant doughnut manufacturing process. Company data for the year 2021
The Cake Factory uses a standard costing system in order to promote efficiency in its giant doughnut manufacturing process.
Company data for the year 2021:
Standard quantity of dough per doughnut0.50 kilograms
Standard rate per kilogram of dough$0.50
Standard baking labour rate per baking hour$12.00 per hour
Standard baking hours per doughnut0.25 hours
Expected Production Output4000 units
Actual Production Output Achieved3500 units
Fixed Overhead Rate (Based on expected production)$1.00 per unit
Variable marketing$1.00 per unit
Fixed Marketing$10,000.00
Variable Overhead Rate per doughnut$ 0.60 per doughnut
Actual Unit Variable Costs of Production $ 4.04
Actual and Budgeted Fixed Costs of Production$4000.00
Selling Price $10.00
Beginning Finished Goods Inventory0 units
Beginning WIP0 units
Ending WIP0 units
Units Sold3000 units
Required:
1)Prepare, applying standard costs, an absorption costing income statement adjusting cost of goods sold for all manufacturing cost variances. (14 marks)
2)What are the potential implications of using absorption costing income for
evaluating the production manager's performance? (2 marks)
3)What controls or measures can the controller implement to minimize or eliminate the concerns outlined in requirement 2?(4 marks)
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