Crumbly Cakes make cakes, which are sold directly to the public. The new production manager (a...

   

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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 2009, 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). Manager responsible Allocated variances Production manager Sales manager Material price (total for all ingredients) Material mix Material yield Sales price Sales contribution volume February Variance $ 25 Fav 0 20 Fav 40 Adv 35 Adv March Variance $ 2,100 Adv 600 Adv 400 Fav 7,000 Fav 3,000 Fav The production manager 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 concerned. 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 2009, 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). Manager responsible Allocated variances Production manager Sales manager Material price (total for all ingredients) Material mix Material yield Sales price Sales contribution volume February Variance $ 25 Fav 0 20 Fav 40 Adv 35 Adv March Variance $ 2,100 Adv 600 Adv 400 Fav 7,000 Fav 3,000 Fav The production manager 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 concerned.

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a The performance of the production manager should be assessed based on the variances allocated to h... View the full answer