Question

Setting Standards, Ethical Behavior

Quincy Farms is a producer of items made from farm products that are distributed to supermarkets. For many years, Quincy's products have had strong regional sales on the basis of brand recognition. However, other companies have been marketing similar products in the area, and price competition has become increasingly important. Doug Gilbert, the company's controller, is planning to implement a standard costing system for Quincy and has gathered considerable information from his coworkers on production and direct materials requirements for Quincy's products. Doug believes that the use of standard costing will allow Quincy to improve cost control and make better operating decisions.

Quincy's most popular product is strawberry jam. The jam is produced in 10-gallon batches, and each batch requires seven quarts of good strawberries. The fresh strawberries are sorted by hand before entering the production process. Because of imperfections in the strawberries and spoilage, one quart of strawberries is discarded for every four quarts of acceptable berries. Four minutes is the standard direct labor time required for sorting strawberries in order to obtain one quart of strawberries. The acceptable strawberries are then processed with the other ingredients: processing requires 12 minutes of direct labor time per batch. After processing, the jam is packaged in quart containers. Doug has gathered the following information from Joe Adams, Quincy's cost accountant, relative to processing the strawberry jam.

Quincy purchases strawberries at a cost of $0.80 per quart. All other ingredients cost a total of $0.49 per gallon.
Direct labor is paid at the rate of $9.20 per hour.
The total cost of direct material and direct labor required to package the jam is $0.33 per quart.

Joe has a friend who owns a strawberry farm that has been losing money in recent years. Because of good crops, there has been an oversupply of strawberries, and prices have dropped to $0.50 per quart. Joe has arranged for Quincy to purchase strawberries from his friend's farm in hopes that the $0.80 per quart will put his friend's farm in the black.

Required:

1. Which of Doug's coworkers would probably be the least helpful to Doug in setting standards?

Which of the listed factors would be the least relevant to Doug in establishing the standards for direct materials and direct labor?

2. Develop the standard cost sheet for the prime costs of a 10-gallon batch of strawberry jam. Do not round intermediate calculations. If required, round your answers to the nearest cent.

Quincy Farms
Standard Cost Sheet
Strawberry Jam - 10-Gallon Batch
Strawberries $
Other ingredients
Sorting labor
Processing labor
Packaging
Total standard cost $

3. Citing the specific standards of the IMA Statement of Ethical Professional Practice described in Chapter 1, explain why Joe’s behavior regarding the cost information provided to Doug is unethical. (CMA adapted)

Answer 1

Answer 2	STANDRED COST SHEET
	STRAWBERRY JAM-10 -GALLON BATCH
S.No	Particulars	detail	Amount($)
1	Strawberries	7quarts*5/4*0.80	7
2	Other ingredients	10*0.49	4.9
3	Sorting labor	7*4/60*9.20	4.29
4	Processing labor	12/60*9.20	1.84
5	Packaging	4*10*.33	13.2
	Total standard cost		31.23

Answer 3 :Joe Adams' behavior regarding the cost information is unethical as It is in violation of the following standards from Statement of Ethical Professional Practice

Integrity. Mitigate actual conflicts of interest; regularly communicate withbusines sassociates to avoid apparent conflicts of interest. Advise all parties of any potential conflicts. Refrain from engaging in any conduct that would prejudice carrying out duties ethically. Abstain from engaging in or supporting any activity that might discredit the profession

Credibility. Communiicate information fairly and objectively

Competence. Provide decision support information and recommendations that are accurate, clear, concise,, and timely.

Confidentiality. general, does not apply to this situation

Answer 1 : The following points should be considered while setting standard of direct material and direct labour

    1 It is assumed that the plant will operate at maximum possible efficiency .

   2 Quantities , price and rate qualities and grade of material , terms of pruchase and substitution of material .

   3 Allowance for normal wastage and machine breakdown has to be considered

  4 Direct material and direct labour standard should not be thight then it will have discentive effect , whereas if standard are loose then this results in complancency .

5 Standard should be reasonable and attinable