09-11-2012, 04:19 PM
Hytus Company
Hytus Company - Variance Case.pdf (Size: 42.41 KB / Downloads: 30)
Hytus 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, Hytus 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 Hytus's wage rates were below the prevailing rate of $ per
hour.
Hytus'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.
The president of Hytus 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 $7 per hour.