Aunt Mollys Old Fashioned Cookies bakes cookies for retail stores. The companys best-selling cookie is chocolate nut

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:


Aunt Molly’s Old Fashioned Cookies bakes cookies for retail stor


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.

Aunt Molly’s Old Fashioned Cookies bakes cookies for retail stor


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.

Aunt Molly’s Old Fashioned Cookies bakes cookies for retail stor


Required:
1. Prepare a new contribution report for April, in which:
• The static budget column in the contribution report is replaced with a flexible budget column.
• The variances in the contribution report are recomputed as the difference between the flexible budget and actual columns.
2. What is the total contribution margin in the flexible budget column of the new report prepared for requirement (1)?
3. Explain (i.e., interpret) the meaning of the total contribution margin in the flexible budget column of the new report prepared for requirement (1).
4. What is the total variance between the flexible budget contribution margin and the actual contribution margin in the new report prepared for requirement (1)? Explain this total contribution margin variance by computing the following variances. (Assume that all materials are used in the month of purchase.)
a. Direct-material price variance.
b. Direct-material quantity variance.
c. Direct-labor rate variance.
d. Direct-labor efficiency variance.
e. Variable-overhead spending variance.
f. Variable-overhead efficiency variance.
g. Sales-price variance.
5. a. Explain the problems that might arise in using direct-labor hours as the basis for applying overhead.
b. How might activity-based costing (ABC) solve the problems described in requirement(5a)?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  answer-question

Managerial Accounting

ISBN: 9780073022857

7th Edition

Authors: Ronald W Hilton

Question Posted: