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

Directing, Directing There are number of good plans which are never rea...

Directing There are number of good plans which are never realized. To realize a plan it requires the initiation and   direction of the number of actions. Often, thes

Budgets and human behaviour, what are the most effective management styles ...

what are the most effective management styles in an organisation

Types of games, Types of games Four basic ways in which competitive sit...

Types of games Four basic ways in which competitive situations (or games) can be classified are: (a) Number of Competitors: In game theory a competitor is characteriz

Transfer pricing , Western States Supply, Inc. (WSS), consists of three div...

Western States Supply, Inc. (WSS), consists of three divisions—California, Northwest, and Southwest—that operate as if they were independent companies. Each division has its own sa

Standard costing .., the applicability of standard costing in modern manufa...

the applicability of standard costing in modern manufacturing environments in volatile environments

Rates, What is your base rate for graduate level accounting? If I decide to...

What is your base rate for graduate level accounting? If I decide to use your service can the tutor and I speak via skype? I''m not located in the U.S.

Z or t statistics, Z or t Statistics If n ≥30 we use Z, if, n Ho:  B ...

Z or t Statistics If n ≥30 we use Z, if, n Ho:  B = O that is, there is no relationship between X and Y HA:  B≠ O There is a significant relationship between X and Y The l

Determine the working capital needs, Himalaya Ltd.'s Profit and Loss Accoun...

Himalaya Ltd.'s Profit and Loss Account for the year ended on 31st December 2005 is specified below. You are needed to determine the working capital needs under operating cycle met

Determine the nature of accounting, The Nature of Accounting Accounti...

The Nature of Accounting Accounting is process of recording, analyzing, summarizing, and interpreting financial (money-related) activities to allow individuals as well as org

Breakeven point, A company manufactures a one product. Estimated cost data ...

A company manufactures a one product. Estimated cost data regarding this product and other information for the product and the company are as follows: Sales price per unit Rs.2000

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