Standard Costing

• Lesson
• Exercise
• Answer

McReynolds, Inc is a manufacturing company, producing electronic circuit boards.
In recent years it has generated its product primarily by the traditional manufacturing method.

(5) McReynolds plans to adjust its standard costing operations, which may result in which of the following benefits:

• A. The change may align company performance management with cost accounting
• B.  McReynolds may now adjust faster and beat Nolan Industries to new markets
• C. Pertinent information allow revisions and more realistic standard costs
• D. The firm gains the ability to utilize recent information compiled by key cost centers
• E.  The certainty of replacing Nolan as regional market share leader

In the company’s inaugural year the president and founder determined that its standard costs should be based upon the ten year averages associated with the region’s market leader Nolan Industries. Nolan had recently experienced dramatic growth, aided in part by great labor relations, setting the pace in innovation, and stable material prices.

The President acknowledges that his rationale in establishing such ideal standard costs was a desire to develop a company theme of high performance goals.

McReynolds has kept copious operations and expenses records. The company is contemplating a transition to a Flexible Management System. The strategy shift was influenced by a company Cost Accounting Committee, which focused on the benefits of shifting its cost accounting methods. They were influenced by a review of the marketing department’s competitive analysis which revealed certain vulnerabilities in Nolan Industries.

While the competitive analysis highlighted Nolan’s inflexibility in chasing new market demand, the Standard Costing Committee suggested that if operations were to be revised so should its cost standards.  Mc Reynolds ultimate goal is to be able to utilize machines that are adaptable to shifting product demands and to utilize more current standards.

Considering the history and current status of McReynolds Inc, how would you answer the following questions?

(1) Which of the following Standard Costing Plan development procedures are highly recommended?

• A.Outsource to college freshmen
• B.Perform séance requesting assistance from dead founder
• C.Establish Cost Accounting Committee
• D.Invite major competitors to submit suggestions

(2) Which of the following companies are most likely to employ a standard costing procedure?

• A.Manufacturing
• B.Cartooning
• C.Public Relations
• D.Media Records

(3) The proposed shift in manufacturing procedures represents a change from traditional to flexible, which of the following costing method is most applicable?

• A. Regional Marketing Standards
• B.  Royal Industry Standards
• C.  Overall Cost Standards
• D.  Current Level Standards

(4) What were some of the erroneous aspects of the original standard costs done d by McReynolds?

• A.Basing standards on goals
• B.Basing standards on ideal conditions
• C.Establishing standards without key input
• D.Relying solely on outside data to determine standards
• E.All of the above