Question

Western Sugar processes sugar beets into granulated sugar that is sold to food companies. It uses a standard cost system to aid in cost control and performance evaluation. To compute the standards for next year, the actual expense incurred by expense category is divided by the bushels of sugar beets processed to arrive at a standard cost per bushel. These per- bushel standards are then increased by the expected amount of inflation forecast for that expense category. This year, Western Sugar processed 63 million bushels of beets. The accompanying table calculates next year’s standard costs.

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Next year, actual production is 68 million bushels. At the end of next year, the following report is prepared:

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Senior management was not surprised at the small variances for labor and sugar beets. The processing plant has very good operating controls and there had been no surprises in the sugar beet market or in the labor market. Initial forecasts proved to be good. Management was delighted to see the favorable total overhead variance ($ 1,090F = $ 1,011U + $ 2,101F). Although variable overhead was over budget, fixed overhead more than offset it. There was no major change in the plant’s production technology to explain this shift ( such as increased automation), so senior management was prepared to attribute the favorable total overhead variance to better internal control by the plant manager.

Required:
a. What do you think is the reason for the overhead variances?
b. Is it appropriate to base next year’s standards on last year’s costs?



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  • CreatedDecember 15, 2014
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