PEZ Candy Inc. produces the popular small candy that is dispensed in collectible

Question

PEZ Candy Inc. produces the popular small candy that is dispensed in collectible flip-top
dispensers. PEZ candy was invented as a breath mint in Vienna, Austria, in 1927. The name PEZ is
derived from “pfefferminz” which is the word for peppermint in German.
In the United States, PEZ candies are produced in a factory in Connecticut since 1973. The PEZ
candies are made from about 95% sugar, which makes the PEZ product cost particularly sensitive to
changes in the cost of sugar. The cost of sugar in the United States has been significantly increasing
over the past year, due in least at part, to preliminary tariffs imposed by the U.S. government on
Mexican sugar. In addition, the cost of labor has been increasing due to increases in the minimum
wage in the U.S. For these reasons, PEZ expects to raise its prices in 2015.

Questions
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

Ans a) Cost standards for direct materials (most likely) and direct labour ( as per management discretion) should be adujsted at the starting of the year in 2015.These adjustement should be made at the starting of the financial year most probably. Since It will have uniform costing for the entire year.

ans b) Direct Material Price Variance and Direct labour Price variance will be impacted, Costing department will be responsible for it.

Ans 3) Direct Labour price variance will be unfavourable and costing team will responsible for it.

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