Question

Hot​ Chocolate, We Got​ It!, LLC. is a manufacturer of premium flavored hot chocolates. Last Christmas​ season, the company produced​ 200,000 packs of its most popular hot chocolate​ mix, Sweet Peppermint. Production this Christmas season exceeded last​ season’s production by​ 25%.  

One pack of hot chocolate mix is expected to use 2 tablespoons of cocoa at a standard direct material cost of​ $0.10 per tablespoon. As of November​ 1, the company had totally depleted its cocoa supply. During​ November, the company purchased​ 400,000 tablespoons of cocoa at a total cost of​ $80,000. At the end of the Christmas​ season, 15,000 tablespoons remained in inventory.

The expected direct labor cost per pack of Sweet Peppermint is​ $1.50. The company anticipates that 0.05 direct labor hours will be logged for each pack produced. During the​ month, the elves worked​ 15,000 direct labor hours and were paid​ $29.00 per hour.

Given the above​ data, which of the following statements is​ incorrect?

A.

A possible explanation for the DM Price variance is supply chain shortages which drove the price of cocoa up.

B.

The actual direct labor unit input ratio is 0.06 hours per pack.

C.

The Total Direct Material variance is an unfavorable​ $27,000

D.

The actual direct material price per unit of output is​ $0.20

E.

The direct labor hours allowed for the actual output level were less than the direct labor hours logged.

Answer 1

The incorrect statement provided is that the Total Direct Material variance is an unfavorable $27,000, since the actual variance is calculated as the difference between the expected cocoa cost for the increased production and the actual cocoa cost. The actual direct material price per tablespoon is indeed $0.20, and the direct labor input ratio is less efficient at 0.06 hours per pack.

Step-by-step explanation:

When Hot​ Chocolate, We Got​ It!, LLC produced 200,000 packs of Sweet Peppermint last season and exceeded this season's production by 25%, it means this year they produced 250,000 packs. If each pack uses 2 tablespoons of cocoa at a standard direct material cost of $0.10 per tablespoon, then the expected cost for cocoa per pack is $0.20, and for 250,000 packs, it would be $50,000. However, the company purchased cocoa at a total cost of $80,000, which suggests a price of $0.20 per tablespoon, double the expected cost. This could indicate a supply chain shortage or other market changes that increased the price of cocoa. From the provided data, the claim that the direct material price per unit of output is $0.20 and that the Total Direct Material variance is an unfavorable $27,000 are consistent with these calculations.

The actual direct labor unit input ratio being 0.06 hours per pack indicates inefficiency when compared to the expected 0.05 hours per pack. The direct labor hours allowed for the actual output level were less because for 250,000 packs at 0.05 hours, only 12,500 hours are expected, much less than the 15,000 hours logged.