Doughnut Delight is a 4th generation family-owned bakery based in Leicestershire. It has a large factory site and 100 stores across the Midlands region of England.

Doughnut Delight use standard costing to control their costs. However, the cost-of-living increases mean that all the costs are rising and there is no potential to pass all of these onto the customers. Suppliers are increasing prices. In previous years contracts for prices could be agreed for a year. Now suppliers want to review their prices every two to three months. In the past year prices have increased by 20% for ingredients and over 700% for energy.

The organisation employs around 700 staff including the store staff. The factory contains around 40 skilled staff members and machines that are now 20-30 years old. The factory staff are very skilled. However, it is getting harder to recruit skilled staff. Only 10 staff are multiskilled and the rest are trained for specific roles. The head of the sweet bakery and savory bakery departments have been there for over 40 years and are near to retirement.

Fridge and freezer space is an issue as there is not enough. The fridges and freezers are built in with no ability to move them. This does mean the flow of the work in the factory is restricted by where the fridges and ovens are.

Bread is made overnight, so it is ready the following morning for delivery to the shops. This means it is fresh every day. There are five mixing machines and a large gas travelling oven. This oven is only used for the bread as it is too costly to run for smaller batches of other products. They have a smaller oven which they run for the latter.

Waste is an issue. Experienced staff can use the correct amount of mixture/filling every time, but new staff cannot. Some pastry waste can be reworked into subsequent products, but this can only be done while it does not affect the quality of the products.

There is a mixture of machine prepared and made products and hand finished products. For example, scones are mixed by machines but stamped out by hand. Bread is made by machine but is packed by hand. The stores receive a tray of bread from the factory and then they package it instore.

Required:

Critically evaluate the use of standard costing in this environment. What suggestions could you make to Doughnut Delight to help them monitor their costs and improve their performance.

Answer rating: 100% (QA)

Critically Evaluating the Use of Standard Costing in Doughnut Delight Standard costing is a cost accounting technique that sets predetermined standards for various cost elements such as labor materials and overhead These standards act as benchmarks against which actual costs are compared and any variances are analyzed to identify potential inefficiencies While standard costing has its benefits the specific environment of Doughnut Delight presents challenges that may limit its effectiveness Lets evaluate its use in this context 1 Rising Costs and Price Fluctuations The costofliving increases and frequent price reviews by suppliers make it difficult to maintain accurate standard costs Using fixed standards in a dynamic cost environment can lead to significant variances and misalignments between planned and actual costs 2 Skilled Labor Shortage The shortage of skilled labor particularly in the factory with older machines poses challenges in achieving standard production efficiency The reliance on specific roles and the lack of multiskilled workers can lead to labor inefficiencies and affect productivity 3 Limited Fridge and Freezer Space The constraint in fridge and freezer space restricts the flow of work in the factory Standard costing may not account for the potential bottlenecks and underutilization of resources caused by these limitations 4 Waste Management Standard costing may not effectively address the issue of waste While experienced staff can minimize waste new staff members may struggle leading to cost variances The inability to rework pastry waste without affecting product quality may result in higher material ... View the full answer