Read the following article: https://accountingintheheadlines.com/2015/01/27/how-
ID: 2468401 • Letter: R
Question
Read the following article: https://accountingintheheadlines.com/2015/01/27/how-will-cost-standards-be-impacted-at-pez-candy-inc-by-the-rising-cost-of-sugar-and-labor/
1. What cost standards will most likely be adjusted at PEZ for the rising costs? When do you think these standard adjustments will be made?
2. If the related cost standard is not adjusted, what variance(s) will be impacted by the rising cost of sugar? What department would typically be responsible for explaining this variance(s)?
3. If the related cost standard is not adjusted, what variance(s) will be impacted by the rising cost of labor? What department would typically be responsible for explaining this variance(s)?
Explanation / Answer
Answer to Q. No. 1
PEZ is more sensitive to sugar since its compose 95 % of the material. With the consitent increase in price of sugar and increase in Labor cost due to increase in minimum wages the most likely statndard revisions will be of Raw material (mainly Sugar) and overheads (Mainly labor impacted by minimum wages). Since sugar price is consitently increasing it is feasible to revise standards at the begining of year 2015 and should also be considered for revision in 2nd half of year.
Answer to Q. no. 2
If related cost standard is not adjusted , Direct material price variance will be impacted and it will reflected as unfavorable variance as its on account of rising cost of sugar. Since the raw material are purchased in procurement department ; procument department will be responsible for explaining the variance
Answer to Q. No.3
If related cost standard is not adjusted ; rising cost of labor will impact Direct labor cost variance. Since labor is related more to manufacturing department , manufacturing department will be accountable for explaning the variances
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