Spanish managers came to Cuba and opened a cigar factory. All cigars are handmade. Domingo hires the best Cuban cigar makers, who formerly worked for the Cuban government making cigars. The average cigar roller makes $ 2.50 per hour in a government factory. Domingo decides to set the effective wage rate at $ 3.00 per hour to attract the best employees, but will pay them piece rates.

Domingo makes three types of cigars: panatellas, coronas, and churchills. All three use the same type of tobacco, but in varying amounts. Among the many management practices installed by Domingo are an employee incentive system and a standard cost system. Because the time to roll each type of cigar varies, employees are paid different amounts for each cigar type. The following standards are established for production:

Required:
a. The piece rate for each cigar type is based on the standard labor minutes for each cigar and a $ 3.00 per hour wage rate. Calculate the piece rate per cigar paid for panatellas, coronas, and churchills.
b. Calculate the tobacco price variance.
c. Calculate the tobacco quantity variances for each type of cigar.
d. Calculate the labor efficiency variances for each type of cigar.
e. Analyze the quantity and labor efficiency variances calculated in parts (c) and (d) above. What managerial implications do you draw from these variances?
f. What suggested changes would you recommend to Domingo Cigars’s management? Bespecific.

Transcribed Image Text:

Panatella CoronaChurchil Cigars produced Actual labor hours 115,000 4,900 60,000 5.600 1,360,000 1,400,000 125,000 7,000 Actual tobacco used (grams) 740,000 3