Behavioral Considerations and Continuous-Improvement Standards At a recent seminar you attended, the invited speaker was discussing some of the advantages and disadvantages of standard costs in terms of evaluating performance and motivating goal-congruent behavior on the part of employees. One criticism of standard costs in particular caught your attention: the use of conventional standard costs may not provide appropriate incentives for improvements needed to compete effectively with world-class organizations. The speaker then discussed so called “continuous-improvement standard costs.” Such standards embody systematically lower costs over time. For example, on a monthly basis, it might be appropriate to budget a 1% reduction in per-unit direct labor cost.
Assume that the standard wage rate into the foreseeable future is $30 per hour. Assume, too, that the budgeted labor-hour standard for October 2013 is 1.50 hours and that this standard is reduced each month by 1%. During December of 2013 the company produced 10,000 units of XL-10, using 14,800 direct labor-hours. The actual wage rate per hour in December was $32.00.
Required
1. Prepare a table that contains the standard labor-hour requirement per unit and standard direct labor cost per unit for the four months, October 2013 through January 2014.
2. Compute the direct labor efficiency variance for December 2013. (Show calculation.)
3. What behavioral considerations apply to the decision to use continuous-improvement standards?
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