Cabinets, Inc., is a large manufacturer of modular kitchen cabinets, sold primarily to builders and developers. The company uses a standard cost system. Standard production costs have been developed for each type of cabinet; these costs, and any cost variances, are charged to the production department. A budget also has been developed for the sales department. The sales department is credited with the gross profit on sales (measured at standard cost) and is charged with selling expenses and any variations between budgeted and actual selling expenses.

Instructions

a. Identify any problem that you see in the company’s standard cost system or in the manner in which cost variances are assigned to the responsible managers.

b. Make recommendations for changing the cost accounting system to reduce or eliminate any problems that you have identified.