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 $4.50 per gallon.
• Direct labor is paid at the rate of $24 per hour.
• The total packaging cost (labor and materials) for the sherbet is $0.80 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

Solution:

Standard cost for the direct cost are:

Packaging:

Quantity: 6 Quart

Standard Rate: $0.70 per quart

Standard Cost: 6 x 0.70 = $4.2

Material (Raspberries):

Given = 4 good quality, 1 get disxard every 4 quart

20% discard as only 1 out of 5 quarts is a good quality raspberry.

Require= 6 quarts

Hence 7.5 quarts (7.5 x 80% = 6), 20 % is sicard rate

Quantity: 7.5 Quart

Standard Rate: $6 per quart

Standard Cost: 7.5 x 6 = $45

Other ingredients:

Quantity: 10 gallon

Standard Rate: $3.4 per gallon

Standard Cost: 10 x 3.4 = $34

Direct Labor:

sorting time is 5 mins per good quart

6 quars= 5 x 6 = 30 mins

blending time = 15 mins,

Total: 30+15 = 45

Quantity: 45 mins = 0.75 hours (45min/60 min)

Rate: $20/hour

Standard Cost: 0.75 x 20 = $15

Total standard cost: 45+4.2+34+15 = $98.2 per batch.

The standard cost of 10-gallon batch = $98.20.