Quick-where’s the nearest Starbucks coffee shop? Down the block,at the airport, in your office building? Seems like they’reeverywhere, doesn’t it? With more than 8,000 locations worldwideand long-run plants to grow to 25,000, new stores open at a rate ofabout 3.5 stores per day. This explosive growth means Starbucks,which doesn’t franchise, must carefully train its personnel in eachlocation on the fine points of serving a product thatdemanding customers expect to be consistent all day, every day.Their secret? Not just fine coffee; it’s close attention tofundamental cost accounting principles.

The store manager in your local Starbucks probablydoesn’t look like an accountant. Yet behind the coffee bar, shereceives and reviews a number of key reports that focus herattention on the standards set by corporate headquarters inSeattle. Even when a new Starbucks store opens down the street andcannibalizes 30% of the existing stores-sales, the manager knowsthat, in the broader picture, it means lower delivery costs,shorter customer lines, and increased foot traffic for all storesin the area.

The typical Starbucks menu offers bulk coffees in thebold, smooth, and mild categories; classic drinks such asfrappuccinos, and coffees and espresso drinks with prices rangingfrom $1.40 for a tall freshly brewed coffee to $4.45 for a high-endiced venti white chocolate mocha. Depending on store location, asingle barista (the person making the drinks) may serve about 20drinks per hour, generating somewhere in the neighborhood of $60 to$80 an hour in revenue. The costs behind those revenues areprimarily barista labor, starting at $7.75 an hour (increasing tomore than $8.00 after a year); and materials, or ingredients suchas coffee, milk, and flavorings. Overhead for store leases,utilities, insurance, water, and other costs are reported to thestore manager, but they’re only held accountable for variations inthe labor costs and ingredient costs.

Chances are good you are one of the millions of people who queueup 18 times a month for your pricey coffee fix. Maybe you evenlinger to read the paper, hold a meeting, or use the in-storewireless network. Starbucks wants you to come back repeatedly, notonly for its product offerings, but because they deliver solidcustomer service and consistency as a result of strict adherence totheir stated standards, morning to night, around the globe.

Questions -1

Assume each Starbucks store tracks direct labor and directmaterial costs for a single grande cappuccino as follows:

Labor $0.40

Coffee 0.70

Dairyproducts 0.35

Cup andlid 0.07

Stirrers,napkins 0.03

Suppose actual output for one week is 1,000 grande cappuccinodrinks. The actual total cost of coffee used to make these drinkswas $730. The manager of the store has no control over the pricepaid for the coffee provided by Starbucks-this is a predeterminedprice. What is the total direct materials variance for coffee forthis drink? Is this a price or an efficiency variance? Is itfavorable or unfavorable? Why?

-Nonfinancial measures are important to the operations of eachStarbucks. For example, cleanliness of public areas is one suchmeasure. Another measure covers achieving the company’s ‘thirdplace” concept (in which home and work are the first two places ina person’s life, Starbucks is third). What other nonfinancialmeasures do you think the company might use? Why do nonfinancialmeasures matter in cost accounting?

Answer rating: 100% (QA)

Question PartI As per the data given above the standard cost of coffee used per drink is 070 Hence the total cost for 1000 Grande cappuccino drinks will be 700 Now the actual cost as given in the ques... View the full answer