The Chocolate Cow Ice Cream Company has grown substantially recently, and management now feels the need to develop standards and compute variances. A consulting firm was hired to develop the standards and the format for the variance computation. One standard in particular that the consulting firm developed seemed too excessive to plant management. The consulting firm’s standard was production of 100 gallons of ice cream every 45 minutes. The plant’s middle level of management thought the standard should be 100 gallons every 55 minutes, while the top management of the company thought that the consulting firm’s standard would provide more motivation to the employees. Why is the company establishing a standard for production? What are some factors the company may need to consider before selecting one of the proposed standards?
The Chocolate Cow Ice Cream Company has grown substantially recently, and management now feels the need to develop standards and compute variances. A consulting firm was hired to develop the standards and the format for the variance computation. One standard in particular that the consulting firm developed seemed too excessive to plant management. The consulting firm’s standard was production of 100 gallons of ice cream every 45 minutes. The plant’s middle level of management thought the standard should be 100 gallons every 55 minutes, while the top management of the company thought that the consulting firm’s standard would provide more motivation to the employees. Why is the company establishing a standard for production? What are some factors the company may need to consider before selecting one of the proposed standards?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter14: Quality And Environmental Cost Management
Section: Chapter Questions
Problem 35P: Recently, Ulrich Company received a report from an external consulting group on its quality costs....
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Concept explainers
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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The Chocolate Cow Ice Cream Company has grown substantially recently, and management now feels the need to develop standards and compute variances. A consulting firm was hired to develop the standards and the format for the variance computation. One standard in particular that the consulting firm developed seemed too excessive to plant management. The consulting firm’s standard was production of 100 gallons of ice cream every 45 minutes. The plant’s middle level of management thought the standard should be 100 gallons every 55 minutes, while the top management of the company thought that the consulting firm’s standard would provide more motivation to the employees.
Why is the company establishing a standard for production?
What are some factors the company may need to consider before selecting one of the proposed standards?
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