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Manufacturing firms set standards for the amount and price of direct materials, direct labor, and overhead consumed by their products. Standards establish a benchmark to be used in evaluating actual performance. They allow management to recognize when costs are not in line with the company's projections and to take corrective action.Standards-variance analysis cost control system can be applied to non-manufacturing businesses, provided that they use repetitive activities to produce a common product or service.
Problem 1: Based on experience, describe and discuss a non-manufacturing (service) business that could benefit from the use of standards. Also explain how standards would help that business control its operations.
If you were considering investing in a company, what other questions would you ask to gain further insight into its performance?
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