Reference no: EM13877052

Behavioral Considerations and Continuous-Improvement Standards At a recent seminar you attended, the invited speaker was discussing some of the advantages and disadvantages of standard costs in terms of evaluating performance and motivating goal-congruent behavior on the part of employees. One criticism of standard costs in particular caught your attention: the use of conventional standard costs may not provide appropriate incentives for improvements needed to compete effectively with world-class organizations. The speaker then discussed so-called "continuous-improvement stand- ard costs." Such standards embody systematically lower costs over time. For example, on a monthly basis, it might be appropriate to budget a 1 percent reduction in per-unit direct labor cost.

Assume that the standard wage rate into the foreseeable future is $40 per hour. Assume, too, that the budgeted labor-hour standard for October 2010 is 1.0 hour and that this standard is reduced each month by 1 percent. During December of 2010 the company produced 10,000 units of XL-10, using 9,980 direct labor hours. The actual wage rate per hour in December was $42.50.

Required

1. Prepare a table that contains the standard labor-hour requirement per unit and standard direct labor cost per unit for the four months, October 2010 through January 2011.

2. Compute the direct labor efficiency variance for December 2010.

3. What behavioral considerations apply to the decision to use continuous-improvement standards?