Discuss the possible causes of unfavorable labor efficiency


Question:

(Developing standard cost card and discussion) The Frozen Fruit cup Company is a small producer of fruit-flavored frozen desserts. For many years, Frozen Fruit cup products have had strong regional sales on the basis of brand recognition; however, other companies have begun marketing similar products in the area, and price competition has become increasingly important. Tanya Morse, the company's controller, is planning to implement a standard cost system for Frozen Fruit cup and has gathered considerable information from her coworkers on production and material requirements for the company's products. Morse believes that the use of standard costing will allow the firm to improve cost control and make better pricing decisions. Frozen Fruitcup's most popular product is raspberry sherbet. The sherbet is produced in 10-gallon batches, and each batch requires 6 quarts of good raspberries. The fresh raspberries are sorted by hand before they enter the production process. Because of imperfections in the raspberries and normal spoilage, 1 quart of berries is discarded for every 4 quarts of acceptable berries. The standard direct labor time is 3 minutes for the sorting that is required to obtain 1 quart of acceptable raspberries. The acceptable raspberries are then blended with the other ingredients; blending requires 12 minutes of direct labor time per batch. During blending, there is some loss of material. After blending, the sherbet is packaged in quart containers. Morse has gathered the following cost information:

• Frozen Fruitcup purchases raspberries at a cost of $0.80 per quart.
• All other ingredients cost a total of $0.45 per gallon.
• Direct labor is paid at the rate of $9.00 per hour.
• The total cost of material and labor required to package the sherbet is $0.38 per quart.

a. Develop the standard cost for the direct cost components of a 10-gallon batch of raspberry sherbet. The standard cost should identify the standard quantity, the standard rate, and the standard cost per batch for each direct cost component of a batch of raspberry sherbet.

b. As part of the implementation of a standard cost system at the company, Morse plans to train those responsible for maintaining the standards on how to use variance analysis. She is particularly concerned with the causes of unfavorable variances.

1. Discuss the possible causes of unfavorable material price variances, and identify the individual(s) who should be held responsible for these variances.

2. Discuss the possible causes of unfavorable labor efficiency variances, and identify the individual(s) who should be held responsible for these variances

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Accounting Basics: Discuss the possible causes of unfavorable labor efficiency
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