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 doughnut 0.50 kilograms

Standard rate per kilogram of dough $ 0.50

Standard baking labour rate per baking hour $12.00 per hour

Standard baking hours per doughnut 0.25 hours

Expected Production Output 4000 units

Actual Production Output Achieved 3500 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 Inventory 0 units

Beginning WIP 0 units

Ending WIP 0 units

Units Sold 3000 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)