To be able to use a standard costing system, a company must develop standards th

Question

To be able to use a standard costing system, a company must develop standards that will serve as a guide for the amount of a resource(e.g. direct material, direct labor) that should be consumed in the production of a unit. A popular way of developing these standards is to conduct a time or process study that examines the actual work of employees whose results are then used as the standard. (An industrial engineer often conducts the study). This standard serves as a benchmark which actual result will be compared to and often times used for performance evaluations.

Suppose you work for an ice packing service company and your job is to fill each plastic bag with 5 pounds of crushed ice and close the bag with a metal fastener. These bags are then delivered to local grocery stores and convenience stores for sale. Assume also you were chosen as the subject for the time study. Because some amount of spillage is normal, the study will measure the amount of ice each bag has. Your time to fill and fasten each bag will also be meausured. These numbers will then serve as company standards for everyone within the company doing your job.

1. Is there any motivation for you to intentionally spill some ice or to purposefully take longer than normal to fill and/or fasten the bag?

2. How might these standards affect employees(including you) later?

3. How might the company mitigate the problem?

Explanation / Answer

Ans.1 we can use a big jar to put ice in bags and for long storage we should put it in a fl gereeze so that they could deliver safely to to local grocery stores.

Ans2. Yes these standard will affect the employee since they will start doing the same by this we can save alot of ice as well as time and we can make profit.

Ans3. company should ask to all employess to follow the standard made and also it should take care of its internal control. the company should check periodically that whether the standards made by it is being followed by emloyee or they are understood to the same.

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