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Effect of Assumed Standard Levels: Harden 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, Harden 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 Harden's wage rates were below the prevailing rate of $ per hour. Harden'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 Harden 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. The standard cost system was implemented on January 1, 19--. At the end of six months of operation, these statistics on labor performance were presented to executive management: January February March Production (units) Direct labor hours Quantity Variances: Variance based on labor standard (one unit each 30 minutes) $3150 $5,950 $6,300 U* $2,800 U $3,850 U$5,250U U U $1,167 $933U U 5,100 3,000 5,000 2,900 4,700 2,900 April 4,500 3,000 May June

4,300 4,400 3,000 3,100

Variance based on cost standard (one unit each 40 minutes) $2,800 F $3,033 F $1,633 F -0*U = Unfavorable; F = Favorable

Materials quality, labor mix, and plant facilities and conditions have not changed to any great extent during the six month period. Required:

Company morale could suffer because the workers would not know for sure how the company evaluates their performance. An attainable or reasonable standard which can be achieved under normal working conditions is likely to contribute to the worker's motivation to achieve the designated level of activity. Answer: 1. and will not attempt to meet the standard. if too tight. workers will tend to set their goals at this low rate. 2. 2. An evaluation of Harden Company's decision to employ dual standards in its standard cost system. management used an ideal standard to measure performance. workers and plant management will tend to react negatively because they feel threatened. In addition. workers will realize that it is impossible to attain the standard. If too loose. If workers and plant management participate in setting the standard.1. disregard for the present and any future cost control system may develop. In Harden's case. Standards which are too loose or too tight will generally have a negative impact on workers motivation. the company's entire measurement system may become suspect and credibility will be lost. and specifically the likely effect on motivation of adopting the labour standard recommended for Harden Company by the engineering firm. as a result. Standards are often classified into three types . it appears that the standard was imposed on the workers by management.theoretical (tight). If the workers learn of the dual standards. or expected actual (loose). normal (reasonable). thus reducing productivity below what is obtainable. Harden made a poor decision to use dual standards. . become frustrated. they can more readily identify with it and it could become one of their personal goals. If executive management imposes standards. A discussion of the impact of different types of standards on motivations. Both of these actions appear to have had a negative impact on output over the first six months.