Mini Case S – Standard CostingRaw MaterialBeginningEndingInventoryInventoryInventoryUsedHarvest Sky Pie Company has a reputation for the best apple pies in Bruce county andApples7,550 kg6.325 kg?surrounding areas. Stacy started the company five years ago, baking pies at home, and hasBrown sugar10 kg5 kg615 kgexperienced wonderful success and growth ever since. The company now has three retail outletsDough35 kg45 kg195 kglocated in Meaford. Chatsworth, and Owen Sound, where the pies are sold for $16 along with aOatmeal8 kg5 ks138 kgselection of vegetables and fruits brought for sale by area farmers. In anticipation of continuedgrowth, Stacy decided to no longer do all of the baking herself and has hired two people (Mikeand Tom) to help. She has an undergraduate degree in accounting and understands the benefits ofStacy is very happy with her new hires. Mike brought an apple pie to the hiring interview withstandard costing. Knowing that it would be much more difficult to manage the baking of pies andStacy to have her sample the product of his family pie recipe. Mike, beaming with pride, toldrelated costs as a result of having employees involved, Stacy implemented a standard costingStacy that this recipe has won many awards at fall fairs over many years. Stacy tasted the pie andsystem. The standard costs are updated monthly.found it extremely sweet, having in her opinion far too much brown sugar. Over the month ofJuly, Stacy thought she had noticed that the pies prepared by Mike were the first to sell out eachThe standard cost sheet used for July production (previous month) of pies follows:day and was surprised to find that pie sales were more than 200 units higher than in June.StandardStandardPrice/KgUsage/PieRequired:Apples$1.500.72 kg1. Stacy’s goal is to maintain a minimum net profit of 20% on the apple pies. Calculate theBrown sugar2.050.18 kgstandard cost per pie and determine whether the current standard cost of the apple pie willDough1.110.11 kg1.90generate the required net profit.Oatmeal0.30 kg2.Stacy has set a control limit of plus or minus $10 on each of the raw material inputs, for boththe individual price and usage variances. Calculate the price and usage variances for eachDirect labour12.800.80 hrsraw material, and determine which variances should be further investigated. (Ignore labour*Variable overhead0.680.25 hrsand overhead variances for this question).*Fixed overhead0.200.15 hrs3. Based on your variance analysis above, could the variances have any connection to Mike orone of the two new hires?*Based on direct labour hours.During July, Harvest Sky Pie Company had the following actual production activity:Actual production of pies1,800Brown sugar was purchased at (per kg)$1.85Dough was purchased at (per kg)$1.22Oatmeal was purchased at (per kg)$1.90Direct labour:Direct labour hours total cost$16,835Direct labour hours used1,300Stacy estimates practical activity to be 1,900 units per month. Apples are purchased only twiceper year, in March and in October. The other ingredients are purchased throughout each month.Inventory data regarding raw materials for July is provided below.
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