Q5SE - Horngren'S Financial And Managerial Accounting

Question

Identifying the benefits of standard costs

Setting standards for a product may involve many employees of the company. Identify some of the employees who may be involved in setting the standard costs, and describe what their role might be in setting those standards.

Step-by-Step Solution

Answer

Employees	Information providing
Human resources manager	Information relating to wage rates.
Production manager	Information relating to resources required.
Purchasing manager	Information relating to the cost.
Production manager and engineer	Information relating to the product and its development.

Step 1: Definition of Standard Cost

The estimated cost of any activity or product is known as the standard cost. This cost is compared against the actual cost to control the business activities. 

Step 2:Employees and their roles regarding standards-

The human resources manager provides information regarding wage rates based on experience requirements, payroll taxes, and fringe benefits (for direct labor cost standards).

Step 3: Employees and their roles regarding standards

The production manager provides information about the nature and the amount of resources to support activities, such as moving materials, maintaining equipment, and product inspection (for manufacturing overhead standards).

Step 4: Employees and their roles regarding standards-

Purchasing manager provides information about the purchase costs, discounts, delivery requirements, and credit policies (for direct material cost standard).

Step 5:Employees and their roles regarding standards-

The production manager provides information regarding Product specifications, spoilage, and production scheduling (for direct materials efficiency standards), and engineers provide information related to the time requirements for production levels and employee experience needed (for direct labor efficiency standards).