A question about standard costing system Idea furniture manufactures and sells a
ID: 327759 • Letter: A
Question
A question about standard costing system Idea furniture manufactures and sells a range of household furniture items and goods. Nitika Singh, Idea's management accountant, has been given the task of compiling the company's standard costs, as it is believed the current cost standards, set several years ago, are well out of date and no longer useful. To help Nitika in completing this task, she has spoken to and collected relevant information from a number of people within the company One of Idea's classic pieces of furniture is the Nörskit handcrafted wooden cutting board. Each cutting board requires 1 metre of timber and 20 minutes of direct labour time to prepare and cut the timber. After the cutting boards are cut, they are inspected for quality purposes. As cutting boards are made from wood (a natural product), boards often contain natural imperfections. On average, natural imperfections cause board to be rejected for every ten accepted Four rubber footpads are attached to each good cutting board. A total of 15 minutes is required to attach all four pads and to finish each cutting board. The timber for the cutting boards costs $12.25 per metre, and each footpad costs $0.08. Direct labour is paid at the rate of $37.50 per hour Required (11 Marks in total) (a) Develop the standard cost for direct material and direct labour of one cutting board. (4 marks) (b) Explain the role of each of the following people in developing cost standards for the Nörskit product i. ii. iii. Purchasing Manager (1 mark) Production Manager (1 mark) Management Accountant (1 mark) (c) Following the update in the standard costs, the production manager has continued to complain that the standards are unrealistic, stifle motivation by concentrating only on unfavourable variances, and are out of date too quickly. He noted that a recent switch from sassafras to blackwood for the cutting boards has resulted in higher material costs but decreased labour hours The net result was no increase in the total cost to produce the boards. However, the monthly cost reports continue to show an unfavourable material variance and a favourable labour variance, despite indications that the workers are slowing down i. Provide two ways in which standard costing system can strengthen cost management. (2 marks) ii. Provide two explanations of why a standard costing system might negatively impact the motivation of production employees. (2 marks)Explanation / Answer
answer
Idea furniture manufactures and sells a range of household furniture items and goods.
As below are the role of different managers.
1. Purchasing manager:- As cutting boards are made of wood which is a natural product, purchasing officer should make sure to check the quality of the wood before it is puchased as this would save labour time to cut boards that will not pass the qwuality check.
2. Production manager:- Production manager should make sure that only those bards are cut that have passed quality check as this would save labour cost that might incurred if the unfit boards are cut. He should plan things first.
3. Management Accountant:- as a management accountant nitika must make sure that the standard cost is plan in such a way that company earns profit on sale of product. she must make a cost plan that has sufficeint profit margin for making profits and paying labour and material cost