The Pie Factory Company is a modern manufacturing facility located in Lubbock, Texas. The company has experience increased sales and profit every year since it started in 2001. However, the CEO of Pie Factory Company believes that tighter standards will lead to increased productivity, and thus higher profit. She was particularly concern with the productivity of the Apple Pie Division. The operation manager argues that the work force in Apple Pie Division is relatively inexperienced and would lose confidence if standards were any tighter than they are now. âBaloney,â replies the CEO. âThe new people should learn what we expect from them from the very beginning.â At present, the workers in the Apple Pie Division are expected to produce 30,000 pies a month and use 90,000 units of materials at a standard cost of $0.50 per unit of material. For the past few months, somewhat over 90,000 units of materials were used each month. The output of 30,000 product units should be manufactured in 5,000 direct labor hours. This standard was being met. A few months ago, it was necessary to hire extra help that increased the total direct labor hours to 5,400 a month. The CEO had proposed a new standard of using 100,000 units of materials to increase production to 40,000 pies per month. The 40,000 pies are to be made in 5,000 direct labor hours with no additional help hired. The standard labor rate remains at $8 per hour. During the first month under the new standard, 36,000 pies were made in 5,200 direct labor hours and 130,000 units of material were used. REQUIRED: 1) Determine the direct materials quantity variances for the first month under the new standard. 2) Determine the direct labor efficiency variance for the first month under the new standard. 3) Calculate and compare the unit cost under the current and new standards. 4) Comment on the advantages and disadvantages of the CEOâs new standards.
The Pie Factory Company is a modern manufacturing facility located in Lubbock, Texas. The company has experience increased sales and profit every year since it started in 2001. However, the CEO of Pie Factory Company believes that tighter standards will lead to increased productivity, and thus higher profit. She was particularly concern with the productivity of the Apple Pie Division. The operation manager argues that the work force in Apple Pie Division is relatively inexperienced and would lose confidence if standards were any tighter than they are now. âBaloney,â replies the CEO. âThe new people should learn what we expect from them from the very beginning.â At present, the workers in the Apple Pie Division are expected to produce 30,000 pies a month and use 90,000 units of materials at a standard cost of $0.50 per unit of material. For the past few months, somewhat over 90,000 units of materials were used each month. The output of 30,000 product units should be manufactured in 5,000 direct labor hours. This standard was being met. A few months ago, it was necessary to hire extra help that increased the total direct labor hours to 5,400 a month. The CEO had proposed a new standard of using 100,000 units of materials to increase production to 40,000 pies per month. The 40,000 pies are to be made in 5,000 direct labor hours with no additional help hired. The standard labor rate remains at $8 per hour. During the first month under the new standard, 36,000 pies were made in 5,200 direct labor hours and 130,000 units of material were used. REQUIRED: 1) Determine the direct materials quantity variances for the first month under the new standard. 2) Determine the direct labor efficiency variance for the first month under the new standard. 3) Calculate and compare the unit cost under the current and new standards. 4) Comment on the advantages and disadvantages of the CEOâs new standards.
