Question

Tastyfreeze Company is a small producer of fruit-flavored frozen desserts. For many years, its products have had strong regional sales because of brand recognition; however, other companies have begun marketing similar products in the area, and price competition has become increasingly important. Dan O’Mara, the company’s controller, is planning to implement a standard cost system for Tastyfreeze and has gathered considerable information from his coworkers about production and materials requirements for Tastyfreeze’s products. Dan believes that the use of standard costs will allow the company to improve cost control, make better pricing decisions, and enhance strategic management.

Tastyfreeze’s most popular product is raspberry sherbet. The sherbet is produced in 10-gallon batches, each of which requires 5 quarts of good raspberries and 10 gallons of other ingredients. The fresh raspberries are sorted by hand before they enter the production process. Because of imperfections in the raspberries and normal spoilage, 1 quart of berries is discarded for every 4 accepted. The standard direct labor time for sorting to obtain 1 quart of acceptable raspberries is 6 minutes. The acceptable raspberries are then blended with the other ingredients; blending requires 18 minutes of direct labor time per batch. After blending, the sherbet is packaged in quart containers. Dan has gathered the following price information:

Tastyfreeze purchases raspberries for $8 per quart. All other ingredients cost $3.30 per gallon.

Direct labor is paid at the rate of $24 per hour.

The total packaging cost (labor and materials) for the sherbet is $0.65 per quart.

Required:

1.  Develop the standard cost for the direct cost components of a 10-gallon batch of raspberry sherbet. For each direct cost component, the standard cost should identify the following: (Do not round intermediate calculations. Round your answers to 2 decimal places.)

a. Standard quantity.

b. Standard rate (or price).

c. Standard cost per 10-gallon batch.

Answer 1

Problem Data:

Production lot size (gallons/batch) =10

Quarts of raspberries/batch = 5

Other Direct Materials/batch(gallons) = 10

No. of quarts discarded for every 4 quarts of berries= 1

No. of quarts accepted =4

Standard Direct Labor Hours for sorting berries = 6 minutes

Blending Labor per batch = 18 minutes

Tastyfreeze purchases raspberries = $8 per quart

All other ingredients = $3.3 per gallons

Direct Labor is paid at the rate of = $24 per hour

Total packaging cost (labor & material) for sherbet = $0.65 per quart

Particulars	Standard Quantity	Standard Rate($)	Standard Cost per batch	Total
Direct Material:
Raspberries(quarts)	6.25	8	50
Other Ingredients(gallons)	10	3.3	33
Sub total:				83
Direct Labor:
Sorting(6 min/10)	0.6	24	14.4
Blending(18 min/60min)	0.3	24	7.2
Sub total:				21.6
Packaging (quarts based)	40	0.65	26	26
Standard cost per ten gallon batch				130.6

Working Note:

• 5 quarts\batch *(4+1)/4 = 6.25 quarts of input required to obtain 5 acceptable quarts of output
• 4 quarts per gallons * 10 gallons= 40quarts