Case Study - Labor standards, Managerial Accounting

Assignment Help:
Case Study

Labor standards
Geeta & Company has experienced increased production costs. The primary area of concern identified by management is direct labor. The company is considering adopting a standard cost system to help control labor and other costs. Useful historical data are not available because detailed production records have not been maintained.
To establish labor standards, Geeta & Company has retained an engineering consulting firm. After a complete study of the work process, the consultants recommended a labor standard of one unit of production every 30 minutes, or 16 units per day for each worker. The consultants further advised that Geeta''s wage rates were below the prevailing rate of Rs per hour.
`Geeta''s production vice-president thought that this labor standard was too tight, and from experience with the labor force, believed that a labor standard of 40 minutes per unit or 12 units per day for each worker would be more reasonable. he president of Geeta & Company believed the standard should be set at a high level to motivate the workers and to provide adequate information for control and reasonable cost comparison. After much discussion, management decided to use a dual standard. The labor standard of one unit every 30 minutes, recommended by the consulting firm, would be employed in the plant as a motivation device, while a cost standard of 40 minutes per unit would be used in reporting. Management also concluded that the workers would not be informed of the cost standard used for reporting purposes. The production vice-president conducted several sessions prior to implementation in the plant, informing the workers of the new standard cost system and answering questions. The new standards were not related to incentive pay but were introduced when wages were increased to Rs7 per hour.
The standard cost system was implemented on January 1, 19--. At the end of six months of operation, these statistics on labor performance were presented to executive management:


January February March April May June
Production (units) 5,100 5,000 4,700 4,500 4,300 4,400
Direct labor hours 3,000 2,900 2,900 3,000 3,000 3,100
Quantity Variances:
Variance based on labor standard
(one unit each 30 minutes) Rs3150 U* Rs2,800 U Rs3,850 U Rs5,250 U Rs5,950 U Rs6,300 U
Variance based on cost standard
(one unit each 40 minutes) Rs2,800 F Rs3,033 F Rs1,633 F -0- Rs933 U Rs1,167 U



*U = Unfavorable; F = Favorable
Materials quality, labor mix, and plant facilities and conditions have not changed to a significant extent during the six month period.




1 Describe the impact of different types of standards on motivations, and specifically, the likely effect on motivation of adopting the labor standard recommended for Geeta & Company by the engineering firm.

2Please advise the company in reviewing the standards.





Related Discussions:- Case Study - Labor standards

Laplace criterion of rationality, Laplace Criterion of Rationality This...

Laplace Criterion of Rationality This criterion holds that if decision makers do not know the probabilities of the various states of nature and have no reason to think otherwis

Cost comprise impact, Cost comprise impact Some of the policy choices w...

Cost comprise impact Some of the policy choices which tend to have the maximum impact on cost comprise: Product performance, configuration, and characteristics Mix and

Advise c''man on the form of business entity he should select, Coleman, a m...

Coleman, a married taxpayer, is going to establish a manufacturing business. He anticipates that the business will be profitable immediately due to a patent he holds. He predicts t

What are the limitation of break even charts, Limitation of break even char...

Limitation of break even charts Despite many advantages a break even chart suffers from the following limitations: 1) A break even chart is based upon a number of assumption

Critique of performance measurement, Critique of Performance Measurement ...

Critique of Performance Measurement This section brings together material from preceding data in this lesson in order to provide a critical appraisal of performance measurement

Explain the techniques of cvp analysis, Techniques of CVP Analysis  The...

Techniques of CVP Analysis  The CVP  analysis deals with the price costs structure and the sales volume and identifies the profit figure with one or other combination of these

Select the cost driver-cost estimating relationship, Select the cost driver...

Select the cost driver(s): This might also be termed to as independent, explanatory or predictor variable. A cost driver can be stated as any factor whose change causes a chang

Break Even Sales in Units, Kibble Company had the following functional inco...

Kibble Company had the following functional income statement for the month of July 2011: Kibble Company Functional Income Statement For the Month Ending July 31, 2011 Sales ($40 x

Jit purchasing arrangements-jit benefits, JIT purchasing arrangements J...

JIT purchasing arrangements JIT philosophy also extends to adapting JIT purchasing techniques whereby delivery of material immediately precedes their use. By arranging with sup

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd