Question

1. 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 six 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. Five 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 18 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.

   1. Quincy purchases strawberries at a cost of $0.60 per quart. All other ingredients cost a total of $0.43 per gallon.
   2. Direct labor is paid at the rate of $8.10 per hour.
   3. The total cost of direct material and direct labor required to package the jam is $0.36 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 $0.60 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	$fill in the blank d468fbfbf044f95_1
   Other ingredients	fill in the blank d468fbfbf044f95_2
   Sorting labor	fill in the blank d468fbfbf044f95_3
   Processing labor	fill in the blank d468fbfbf044f95_4
   Packaging	fill in the blank d468fbfbf044f95_5
   Total standard cost	$fill in the blank d468fbfbf044f95_6

Answer 1

Answer 1 :

Information provided by joe quincy's cost accountant is least helpful to doug in setting standards as joe is arranging a purchase agreement for quicy with his friend so that his friends business would become profitable again .

Information provoided by Joe is distorted.

Normal spoilage and processing time is least important factor as it can't be reduced or avoided.

The following points should be considered while steeing standard of direct material and direct labor

• quantities , price and rate qualities and grade of material , terms of purchase and substitution of material
• allowance for normal wasteage and machine breakdown has to be considered
• Standard cost should be reasonable and attainable

Answer 2 :

QUINCY FARMS
Standard cost sheet
Strawberry Jam - 10-Gallon Batch
	Working ( Standard qty * standard rate )	Standard cost ($)
Strawberries	( 6 * 5 / 4 ) * 0.6	4.5
Other ingredients	10 * 0.43	4.3
Sorting labor	( 6 * 5 / 60 ) * 8.1	4.05
Processing labor	( 18 / 60 ) * 8.1	2.43
Packaging	( 4 * 10 ) * 0.36	14.4
Total standard cost		29.68