Toddler Treasures, Inc
3 Pages Posted: 5 Apr 2010
Students must determine the price (rate) and quantity (efficiency) variance for materials and labor used in manufacturing a new product, along with delivery variances. Does the company product manager's decision to change materials appear to be a good one? This start-up company grew from a cottage industry to a manufacturing company.
November 11, 2009
TODDLER TREASURES, INC.
Toddler Treasures, Inc., had its origin in a small community in central Iowa when a group of local residents decided to form a weekly sewing circle. Although the initial motivation for getting the group together was social in nature, they soon discovered that many of the members were unusually talented and creative. Consequently, it was not long before they were producing handmade items that were placed on consignment for sale at several of the local retail shops. After three years of continued increases in market demand, several of the more entrepreneurial members decided to investigate the feasibility of starting their own company. When a small but well-maintained manufacturing facility located in a nearby town was advertised for sale, the group of entrepreneurs, along with Sharon Robinson, the former plant manager, decided to start their own small business and purchase the manufacturing plant. Under Sharon's leadership, the group developed an initial business plan that called for the new company to focus on producing and selling products targeted for children. Thus, the founders decided to name their new company Toddler Treasures, Inc.
Based on their experience with the items that were made and sold by the local sewing circle, the founders decided that their initial product would be a brightly colored blanket that would be marketed for children under the age of five, and that could be customized to different market segments to accommodate a variety of customer interests and specifications. David Reed, the company's chief financial officer, who had been hired to assist with the financial arrangements of the business start-up, decided to adopt a standard costing system as part of the company's comprehensive planning and control system. Thus, he determined the standard cost of the company's blanket to be $ 74.00 as follows:
Direct material (6 square yards at $ 8 per square yard) $ 48.00Direct labor (30 minutes at $ 16 per hour) 8.00Manufacturing overhead 18.00Total standard manufacturing cost per blanket $ 74.00
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Keywords: manufacturing price variance quantity rate efficiency start-up, performance measurement
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