Exam 10: Standard Costs for Control: Direct Material and Direct Labour

Jay Bole is in the process of developing a standard for the labour cost of one unit of Product X. According to the design manual, it takes a skilled worker 30 minutes to produce one unit of Product X when the workshop is operating at peak condition. However, Product X is quite complex and even a skilled worker operating in high efficiency often needs another 5 minutes to adjust the tools, re-oil the machine and rework some aspects of the product. A skilled worker is paid $30 per hour, while the company pays 20 per cent on-costs on top of this. Jay decides to develop a perfection standard. The standard labour cost for one unit of Product X is

Selected data about a firm's materials follows. What amount would be debited to materials account for the purchase of material?

Usefulness of standard costs in controlling costs Standard costs are said to be useful in controlling costs. Assume that the standard cost for raw materials per unit of finished product is $6.00 based on 3 kg at $2.00 per kg. i. Explain how such a standard can be used to evaluate performance. ii. Why is the degree of controllability important in utilising standard costs to evaluate performance?

Selected data about a firm's materials follows. What amount would be debited to work in process account for materials used?

In general, it is felt that theoretical standards do not motivate employees to achieve goals, as employees are aware that the standards set are virtually impossible to achieve.