Question

Aunt Molly's Old Fashioned Cookies bakes cookies for retail stores. The company's best-selling cookie is chocolate nut supreme, which is marketed as a gourmet cookie and regularly sells for $8.00 per pound. The standard cost per pound of chocolate nut supreme, based on Aunt Molly's normal monthly production of 400,000 pounds, is as follows Total Cost Quantity Standard Unit Cost Cost Item Direct materials: Cookie mix Milk chocolate Almonds 10 oz. 5 oz. 1 oz $ 0.02 per oz 0.15 per oz. 0.50 per oz. $0.20 0.75 0.50 $1.45 Direct labor:* Mixing Baking 1 min. 2 min. 14.40 per hr 18.00 per hr $0.24 0.60 $0.84 $1.62 $3.91 Variable overheadt 3 min. 32.40 per direct-labor hr Total standard cost per pound Direct-labor rates include employee benefits Applied on the basis of direct-labor hours. Aunt Molly's management accountant, Karen Blair, prepares monthly budget reports based on these standard costs. April's contribution report, which compares budgeted and actual performance, is shown in the following schedule Contribution Report for April Static Budget 400,000 Actual Variance Units (in pounds) Revenue Direct material Direct labor Variable overhead 50,000 F S3,200,000 $3,555,000 355,000 F $ 580,000 865,000 $285,000 U 12,000 U 102,000U Total variable costs $1,564,000 $1,963,000 S399,000 U $1,636,000 $1,592,000 44,000 U 450,000 336, 000 648,000 348,000 750,000 Contribution margin Justine Madison, president of the company, is disappointed with the results. Despite a sizable increase in the number of cookies sold, the product's expected contribution to the overall profitability of the firm decreased. Madison has asked Blair to identify the reason why the contribution margin decreased. Blair has gathered the following information to help in her analysis of the decrease Usage Report for April Cost Item Direct materials: Quantity Actual Cost $ 93, 000 532,000 240,000 Cookie mix Milk chocolate Almonds 4,650,000 oz. 2,660,000 oz 480,000 oz. Direct labor: Mixing Baking Variable overhead Total variable costs 450,000 min. 800,000 min. 108,000 240,000 750,000 $1,963, 000

Answer 1

1				Flexible
				Budget	Actual	Variance	Status
	Units (in pounds)			$      450,000.00	$      450,000.00	-
	Revenue			$ 3,600,000.00	$ 3,555,000.00	$      45,000.00	U
	Direct Material			$      652,500.00	$      865,000.00	$    212,500.00	U
	Direct Labor			$      378,000.00	$      348,000.00	$      30,000.00	F
	Variable OH			$      729,000.00	$      750,000.00	$      21,000.00	U
	Total Variable Cost			$ 1,759,500.00	$ 1,963,000.00	$    203,500.00	U
	Contribution Margin			$ 1,840,500.00	$ 1,592,000.00	$    248,500.00	U
2	Total Contribution Margin =			$ 1,840,500.00

Data For Material Variances Budget (400000 pounds) QtyRate Amount Standard (450000 pounds) Actual (450000 pounds) Amount Qty Rate Qty Rate 4500000$ 0.090,000.00 2250000 0.15 $337,500.00 450000 $ 0.50 $225,000.00 $652,500.00 4650000 $ 0.02 93,000.00 2660000 0.20 532,000.00 430000 $ 0.50 $ 240,000.00 $865,000.00 4000000 0.02 80,000.00 2000000 0.15 $300,000.00 400000 0.50 $200,000.00 $580,000.00 Cookie Mix Milk Chocolate Almonds Calculation of Material Variances Particulars Basis Cookie Mix Milk Chocolate Almons Total ($0.02 $0.02)x4650000 ($0.15 $0.20)x266000 ($0.50- $0.50)x480000 a) Material Price Variance (Standard Price Actual Price) x Actual Quantity 133,000.00 (U) $133,000.00 U 61,500.00 $15,000.00 $ 79,500.00 U b) Material Quantity variance (Standard Quantity- Actual Quantity) x Standard Price S 3,000.00

Data for Labor Variance Standard (450000 pounds) Budget (400000 pounds) Amount Actual (450000 pounds) Amount Rate Hour Rate Hour Amount Hour Rate Mixing Baking 6666.667 14.40 96,000.00 13333.33 18.00 $240,000.00 $336,000.00 7500 14.40 $108,000.00 15000 18.00 $270,000.00 $378,000.00 7500 14.40 108,000.00 13333.33 18.00 240,000.00 $ 348,000.00 Calculation of Labor Variances Particulars Basis Mixing Baking Labor Rate Variance Standard Rate-Actual Rate) x Actual Hours d) Labor Efficiency Variance 30,000.00 (F) (Standard Hours- Actual Hours) x Standard Rate

Data for V.OH Variance Budget (400000 pounds) Amount Standard (450000 pounds) Actual (450000 pounds) Amount Rate Hour Hour Rate Amount Hour Rate 32.4 32.4 20833.33 V.OH 20000 648000 22500 729000 36 750000 Calculation of V.OH Variances Particulars Basis 75000 (U) (Standard Rate Actual Rate) x Actual Hour e) V.OH spending Variance 54000 (F) V.OH Efficiency Variance (Standard Hour Actual Hour) x Standard Rate ($8.00-$7.9) x 450,000 g) (Budgeted Sales Price - Actual Sales Price) x Actual Quantity Sales Price Variance 45000 (U)