Question

DQ4: Setting materials, labor, and overhead standards is challenging. If standards are set to0 low, companies might purchase inferior products and employees might not work to their full potential. If standards are set too high, companies could be unable to offer a quality product at a profitable price and employees could be overworked. The ethical challenge is to set a high but reasonable standard. Assume that as a manager you are asked to set the standard materials price and quantity for the new 1,000 CKB Mega-Max chip, a technically advanced product. To properly set the price and quantity standards, you assemble a team of specialists to provide input Required Identify four types of specialists that you would assemble to provide information to help set the materials price and quantity standards. Briefly explain why you chose each individual.

Answer 1

SOLUTION:

First we have to know on what items we need information and in-depth knowledge on those things so first we look at it. Price and quantity standards are the two items so first look at price.

Price:
-          First we have to know the production and variable costs incurred on each item
-          Profit margin on each item of sales
-          Competitor pricing analysis
-          List of homogenous goods prices that are in the market at present
-          If actual costs are less than standard costs, the variance is favorable

Quantity standards:
-          Inventory methods review
-          Competitors Quantity standards
-          Economic order quantity (EOQ) an estimate of the number of units per order that will be the least costly and provide
the optimal balance between the costs of ordering and the costs of carrying inventory
-          A materials quantity variance is calculated as the difference between the standard direct materials price and the actual direct materials price multiplied by the actual quantity of direct materials used.
-         
After having sufficient idea about all this things now we have to assemble a team of specialists to provide input

Specialist 1: This person must have sufficient knowledge about all pricing related theories and who can better analyze the future fluctuations in price related aspects (Internally)

Specialist 2: This person must have good amount of information about market related aspects and competitors strategies and pricing methods (Externally)

Specialist 3: This person must have all information about quantity standards and methods to maintain it who can better analyze the future fluctuations on this aspect (Internally)

Specialist 4: This person must have good amount of information about market related aspects and competitors strategies and quantity based methods (Externally)