GROUP ASSIGNMENT 2 1

Group Case #2

Introduction Management Accounting

ACCT-3000-RLC

Professor: Kathleen Kent

Submission Date: April 15, 2021

Group 12
Chau To (N01316979)
Alisa Derbak (N01330707)
GROUP ASSIGNMENT 2 2

a) (15 marks) Develop a standard cost sheet for one box of cookies, clearly show the
following: Show ALL calculations.

Description Standard Standard Usage Standard Subtotal

Price Cost

Direct
materials

Peanuts Original price $2.85 x

= 3.25/kg 3.6kg =
$10.26/box
Price after
selling shells 120 peanuts in 150g cookies package
= 3.25 – 0.4 =
→ 1 peanut = 120/150 = 1.5g
$2.85/kg
1.5g x 120 = 180g peanuts per
package

1 box contains 20 packages

180g x 20 = 3600g = 3.6 kg

Whipped $3.50/g 5g butter = 1 package $3.5 x

organic 100g =
butter 1 box = 20 packages $350/box

20 pkg x 5g = 100g/box

Eggs Added to overhead

Packaging $0.05/each 20 packages 20 x $0.05

GROUP ASSIGNMENT 2 3

= $1

Shipping $0.40/each 1 box $0.40 x 1 =

boxes $0.40

Total direct $361.66

materials

Direct
labour

Baking $25.00/hour Total cookies boxes produced last $25.00 x

year 0.095 =
$2.375/box
2,500,000 / 20 = 125,000 boxes

Baking efficiency improved 5% →

Baking process hours decreased 5%

12,500 x (100% - 5%) = 11,875

hours

Baking hours required for 1 box

11,875 / 125,000 = 0.095 hours

Inspecting $10.00/hour Inspecting efficiency improved 5% $10.00 x

→ 0.038 =
$0.38/box
Inspecting process hours decreased
5%

5,000 x (100% - 5%) = 4,750 hours

GROUP ASSIGNMENT 2 4

Inspecting hours required for 1 box

4,750 / 125,000 = 0.038 hours/box

Packaging $12.50 Packaging process hours required for $12.50 x

1 box 0.06 =
$0.75/box
7,500 / 125,000 = 0.06 hours/box

Machine $15.00 Machine operators hours required for $15.00 x

operators 1 box 0.036 =
$0.54/box
4,500 / 125,000 = 0.036 hours/box

Total direct $4.045

labour

Overhead

Variable Variable = Total direct labour hours = 0.036 + $6.0675 x

overhead overhead is 0.06 + 0.038 + 0.095 = 0.229 hours 0.229 =
typically $1.39/box
150% of
direct labour
costs

$4.045 x
150% =
$6.0675
GROUP ASSIGNMENT 2 5

Fixed $1.5 million / = Total direct labour hours = 0.036 + $12 x

overhead 125,000 = 0.06 + 0.038 + 0.095 = 0.229 hours 0.229 =
$12 $2.75/box

Total $4.14
overhead

Total $369.85
standard
unit cost
(per box)

Total $369.85 /
standard 20 =
unit cost $18.5
(per
package)

b) (5 marks) Discuss 2 benefits of a standard costing system for the company?

- Standard costing systems enhance planning, control and improve performance

measurement. It allows the company to compare actual costs with budgeted costs which
can identify variances in the production process. The total variance can be broken down
into prices and usage variances which enables managers to better analyze and control
total variances.
- Furthermore, standard costing systems provide available unit cost information for pricing
decisions at any time as the actual costs are unnecessary within the system. This ability
allows companies to do a significant amount of bidding which is paid on a cost-plus
basis. (Mowen., 2015)

c) (5 marks) Discuss what you believe is the primary issue with the current cost
structure? Provide one recommendation to improve profitability. Discuss possible
constraints that may impact future profitability.
GROUP ASSIGNMENT 2 6

The primary issues with the current cost structure are the difference between standard materials
and those actually used for production caused by adding extra 10 gram of peanuts to each
package, and incorrect allocation of the fixed manufacturing overhead.

The company should follow the standard quantity to avoid additional unworthy expenditures or
increase the price per package. Also, it is necessary to correct the classification of fixed and
variable costs, and manufacturing overhead particularly, so the total production cost will be
accurate.

However, the company can face such a constraint as customers’ dissatisfaction in case the size of
the package is reduced to standard 150 grams. Since consumers are used to buying more for this
price, sales can decline, as well as the company’s profitability.

d) (5 marks) If the company maintained production of 2.5 million packages of cookies

for next year, and 460,000 kilograms of peanuts were used, what is the materials usage
variance? Why is this measure important? Explain your result.

Standard Quantity of Peanuts = Peanuts per package × 30 gram

20 peanuts standard = 0.18 kg
2,500,000 × 0.18kg = 450,000 kg of peanuts
Actual = 460,000 kilogram

There is a 10,000 kg of unfavorable material usage variance.

It is important for us because it helps to find out the quantity of materials used outside of the
standard of production. Taking it into consideration, we are able to measure and, what is more
important, increase efficiency of using those materials.

REFERENCES

Mowen., 2015. Cornerstones of Managerial Accounting. Cengage Learning.