Question

1. Assume each Starbucks store tracks direct labor and direct material costs for each of its drinks, with the stan- dard costs for a single grande cappuccino as follows: Labor $0.40 Coffee 0.70 Dairy products 0.35 Cup and lid 0.07 Stirrers, napkins 0.03 Suppose actual output for one week is 1,000 grande cappuc- cino drinks. The actual total cost of coffee used to make these drinks was $730. The manager of the store has no control over the price paid for the coffee provided by Starbucks- this is a predetermined price. What is the total direct materi- als variance for coffee for this drink? Is this a price or an effi- ciency variance? Is it favorable or unfavorable? Why? 2. Nonfinancial measures are important to the operations of each Starbucks. For example, cleanliness of public areas is one such measure. Another measure covers achieving the company's "third place" concept (in which home and work are the first two places in a person's life, Starbucks is third). What other nonfinancial measures do you think the company might use? Why do nonfinancial measures mat- ter in cost accounting?

Answer 1

Solution to part 1:

Calculation of total direct materials variance for coffee :

Total standard cost of coffee for actual output - Total actual cost of coffee in drink

$ 0.7 x 1000 drinks - $ 730

$ 700 - $ 730

$30 (Unfavorable)

This is a price variance because details regarding standard quantity of coffee required for the drink is not given which is required for calculating efficiency variance. Also, the actual quantity of coffee used is not given.We know that total direct material variance is the sum of direct material price variance and direct material efficiency variance. But since we cannot calculate material efficiency variance here the entire direct material variance is attributed to direct material price variance.

This variance is clearly unfavorable as Starbucks has spent $ 30 more than the standard cost of coffee for 1000 grande cappuccino drinks.

Solution to part 2:

Other non-financial measures that Starbucks can use are:

1) Number of customers.: This would indicate the number of customers in Starbucks for a particular period.

2) Customer Feedback : This could be used as a  means to measure customer satisfaction . Customers may be given feedback forms through which they would share their Starbucks experience and suggest improvements is any which may enable Starbucks to improve further.

3) Sales per seat hour or Customer:

Total sales divided by total seat hours for a period can be used as a means to measure efficiency. Or, Total sales divided by total number of customers in a period.

Non-Financial measures are important in cost accounting because:

1) More focus on long term strategies: Financial measures are focused on achieving short term objectives like a target rate of profit or particular amount of revenue. Non- financial measures can be used to implement strategic plans in the future by supplementing managers with incentives.This measures could be in the form of employee and customer satisfaction, innovation and quality.

2) Importance of intangible assets: Unlike tangible assets, intangible assets like employee talent or skills, customer loyalty are not recorded in balance sheet. However, factors like these are detrimental to the success of the organization.

3) Better future Indicators : Investments in customer satisfaction methods can improve future performance by increasing revenue in the form of new customers in the long run . Similarly investments in innovation and technology can lead to reduction in wastage and hence lead to more efficient utilization of resources.