Crumbly Cakes make cakes, which are sold directly to the public. The new production manager (a celebrity
Question:
Crumbly Cakes make cakes, which are sold directly to the public.
The new production manager (a celebrity chef) has argued that the business should use only organic ingredients in its cake production.
Organic ingredients are more expensive but should produce a product with an improved flavour and give health benefits for the customers. It was hoped that this would stimulate demand and enable an immediate price increase for the cakes.
Crumbly Cakes operates a responsibility based standard costing system which allocates variances to specific individuals. The individual managers are paid a bonus only when net favourable variances are allocated to them.
The new organic cake production approach was adopted at the start of March, following a decision by the new production manager. No change was made at that time to the standard costs card. The variance reports for February and March are shown below (Fav = Favourable and Adv = Adverse)
The productionmanager is upset that he seems to have lost all hope of a bonus under the new system. The sales manager thinks the new organic cakes are excellent and is very pleased with the progress made.
Crumbly Cakes operate a JIT stock system and holds virtually no inventory.
Required:
(a) Assess the performance of the production manager and the sales manager and indicate whether the current bonus scheme is fair to those concemed.
In April the following data applied:
The budget for production and sales in April was 50 000 cakes.
Actual production and sales was 60 000 cakes in the month, during which the following occurred:
All cakes produced must weigh 0.36 kg as this is what is advertised.
Required:
(b) Calculate the material price, mix and yield variances and the sales price and sales contribution volume variances for April.
You are not required to make any comment on the performance of the managers.
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