Rorya Cakes Bakery makes a single product called Delicious Cakes. The company is using marginal costing to value its product. The company standard cost card for Delicious Cakes comes from the parent company called Rorya Oven headquartered in Malaysia, which contains the following:
Direct Material: TZS
Ingredient A: (2 kg @ TZS.1,500) 3,000
Ingredient B: (1.5 litres @ TZS.1,200) 1,800
Direct Labour (2 hours @ TZS.5,000) 10,000
Variable overhead (6 machine
hours @ TZS.200)
Total Variable Production Costs 16,000
The above standard costs were for annual budget production and sales of 8000 units at a price of TZS.20,000 per cake. Management was concerned about how the company is controlling costs and wants to control costs according to area of responsibility.
The Management Accountant have collected actual information for the year ended 30th June 2018.
Sales: 8600 cakes sold for TZS.172,000,000
Ingredient A: 18,100 kilograms at cost of TZS.21,720,000
Ingredient B: 11,800 litres at a cost of TZS.15,930,000
Direct labour: 17,000 hours at a cost of TZS.102,000,000
Variable overhead: 50,200 machine hours at a cost of TZS.10,040,000
Rorya Cakes Bakery had 400 cakes in its stores at the end of year ended 30th June 2018.
(a) Draft Rorya Cake Bakery’s Operating Statement to reconcile budgeted contribution to actual contribution for the year ended 30th June 2018.
(b) State the possible reasons for direct labor variances.
(c) Evaluate and communicate the reasons why Rorya Cake Bakery could not calculate material mix and yield variances.