Case Study Labor standards, Accounting Basics

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.

Write Your Message!

Name

Email id

Message

Verfication Code

User Account

All Pages

Case Study Labor standards, Accounting Basics

Related Discussions:- Case Study Labor standards

What is intangible assets, Q. What is Intangible Assets? Intangible Ass...

Materiality concept, Materiality Concept: There are several events in ...

History of accounng, application/realization in history of accounting

How to find profit income from bank?, how to find profit income from bank?

Altona company, The balance sheet account as of July 31, 1995 for altona co...

Obtain relevant authoritative literature on accounting, Obtain the relevant...

Rounding decimals, How do you round up to one decimal point using percentag...

Manufacturing, Weston Corporation manufactures a product that is available ...

What do you mean by cross-indexing, Q. What do you mean by Cross-indexing? ...

Explain both management accounting and financial accounting, Management acc...

Write Your Message!

Featured Services

Online Tutoring

Project Development

Exam Preparation

Course Help

Assignment Help

Popular Subjects

Assured A++ Grade

Academics

Major Subjects

Majors

Get In Touch

TERMS & POLICIES

HELP & SUPPORT