Accounting – Colonial Cookies, Inc. , bakes cookies for retail stores.

Colonial Cookies, Inc. , bakes cookies for retail stores. The Company’s best-selling cookie is chocolate nut supreme which is marketed as a gourmet cookie and regularly sells for 8. 00 per pound. The standard cost per pound of chocolate nut supreme, based on Colonial’s normal monthly production of 200,000 pounds, is as follows. . 09px,=”” 12px=””>Cost itemQuantityStandard unit CostTotal CostDirect Material: Cookie mix10 oz$. 02 per oz$. 20Milk Chocolate5 oz. 15 per oz. 75Almonds1 oz. . 50 per oz. 501. 45Direct labor: Mixing1 min14. 40 per hr$ . 24Baking2 min18. 00 per hr. 60. 84Variable overhead+3 min32. 40 per direct-labor hr1. 62Total standard cost per pound$3. 91*Direct labor rates include employees’ benefits. + applied on the basis of direct-labor hoursColonial’s management accountant, Karen Blair, prepares monthly budget reports based on these standard costs. February’s contribution report, which compares budgeted and actual performance, is shown in the following schedule. . 09px,=”” 12px=””>Contribution report for FebruaryStatic BudgetActualVarianceUnits (in Pounds)200,000225,00025,000 FavorableRevenue$1,600,000$1,777,500$177,500 FDirect Material$290,000$432,500$142,500 UnfavorableDirect Labor168,000174,0006,000 UVariable overhead324,000375,00051,000 UTotal variable costs$782,000$981,500$199,500 UContribution Margin$818,000$796,000$22,000 UJustine Madison, president of the company, is disappointed with the results. Despite a sizable increase in the number of cookies sold, the products expected contribution to the overall profitability of the firm decreased. Madison has asked Blair to identify the reason why the contribution margin decreased. Blair gather the following information to help in her analysis of the decrease. . 09px,=”” 12px=””>Usage Report For FebruaryCost ItemQuantityActual CostDirect materials: Cookie mix2,325,000 oz. $46,500Milk Chocolate1,330,000 oz. 266,000Almonds240,000 oz120,000Direct Labor: Mixing225,000 min54,000Baking400,000 min120,000Variable overhead375,000Total variable costs$981,500Required: Prepare a new contribution report for February, in which: The static budget column in the contribution report is replaced with a flexible budget column. The variance in the contribution report are recomputed as the difference between the flexible budget and actual columns. What is the total contribution margin in the flexible budget column of the new report prepared for requirement (1)?Explain (interpret) the meaning of the total contribution margin in the flexible budget column of the new report prepared for requirement (10. What is the total variance between the flexible budget contribution margin and the actual contribution margin in the new report prepared for requirement (1)? Explain this total contribution margin variance by computing the following variances. (Assume that all materials are used in the month of purchases. )Direct- material price varianceDirect- material quantity variance. Direct-labor rate variance. Direct-labor efficiency variance. Variable- overhead spending varianceVariable-overhead efficiency varianceSales-price variance. A. Explain the problems that might arise in using direct-labor hours as the basis for applying overhead. B. How might activity-based costing (ABC) solve the problems described in requirement (5a)?

Accounting – Colonial Cookies, Inc., bakes cookies for retail stores.

Colonial Cookies, Inc., bakes cookies for retail stores. The Company’s best-selling cookie is chocolate nut supreme which is marketed as a gourmet cookie and regularly sells for 8.00 per pound. The standard cost per pound of chocolate nut supreme, based on Colonial’s normal monthly production of 200,000 pounds, is as follows.

.09px;=”” 12px=””>
Cost item

Quantity

Standard unit Cost

Total Cost

Direct Material:

Cookie mix

10 oz

$.02 per oz

$.20

Milk Chocolate

5 oz

.15 per oz

.75

Almonds

1 oz.

.50 per oz

.50

1.45

Direct labor:

Mixing

1 min

14.40 per hr

$ .24

Baking

2 min

18.00 per hr

.60

.84

Variable overhead+

3 min

32.40 per direct-labor hr

1.62

Total standard cost per pound

$3.91

*Direct labor rates include employees’ benefits.

+ applied on the basis of direct-labor hours

Colonial’s management accountant, Karen Blair, prepares monthly budget reports based on these standard costs. February’s contribution report, which compares budgeted and actual performance, is shown in the following schedule.

.09px;=”” 12px=””>
Contribution report for February

Static Budget

Actual

Variance

Units (in Pounds)

200,000

225,000

25,000 Favorable

Revenue

$1,600,000

$1,777,500

$177,500 F

Direct Material

$290,000

$432,500

$142,500 Unfavorable

Direct Labor

168,000

174,000

6,000 U

Variable overhead

324,000

375,000

51,000 U

Total variable costs

$782,000

$981,500

$199,500 U

Contribution Margin

$818,000

$796,000

$22,000 U

Justine Madison, president of the company, is disappointed with the results. Despite a sizable increase in the number of cookies sold, the products expected contribution to the overall profitability of the firm decreased. Madison has asked Blair to identify the reason why the contribution margin decreased. Blair gather the following information to help in her analysis of the decrease.

.09px;=”” 12px=””>
Usage Report For February

Cost Item

Quantity

Actual Cost

Direct materials:

Cookie mix

2,325,000 oz.

$46,500

Milk Chocolate

1,330,000 oz.

266,000

Almonds

240,000 oz

120,000

Direct Labor:

Mixing

225,000 min

54,000

Baking

400,000 min

120,000

Variable overhead

375,000

Total variable costs

$981,500

Required:

Prepare a new contribution report for February, in which:
The static budget column in the contribution report is replaced with a flexible budget column.
The variance in the contribution report are recomputed as the difference between the flexible budget and actual columns.
What is the total contribution margin in the flexible budget column of the new report prepared for requirement (1)?
Explain (interpret) the meaning of the total contribution margin in the flexible budget column of the new report prepared for requirement (10.
What is the total variance between the flexible budget contribution margin and the actual contribution margin in the new report prepared for requirement (1)? Explain this total contribution margin variance by computing the following variances. (Assume that all materials are used in the month of purchases.)
Direct- material price variance
Direct- material quantity variance.
Direct-labor rate variance.
Direct-labor efficiency variance.
Variable- overhead spending variance
Variable-overhead efficiency variance
Sales-price variance.
A. Explain the problems that might arise in using direct-labor hours as the basis for applying overhead.B. How might activity-based costing (ABC) solve the problems described in requirement (5a)?