Question

Consider the following two separate firms. One firm manufactures flexible packaging films for the snack, bakery, confectionery, and tobacco industries. Its manufacturing process has been quite stable for many years, with few technological innovations. Moreover, its products have a long life cycle. The other firm manufactures complex printed circuit boards, primarily for laptop computers and cell phones. It does contract assembly for original equipment manufacturers. Its products have short life cycles and the firm itself faces rapid technological change in its manufacturing processes. Both firms have about the same cost structure; the percentage of unit manufacturing cost that is direct labor is roughly the same for both firms, as is the percentage of unit manufacturing cost that is direct materials.

Required:
a. Which firm is more likely to use a standard cost system to control labor costs? Explain why.
b. How would you expect the two firms’ compensation plans for their first- line supervisors to vary? (First- line supervisors manage production employees and are responsible for controlling direct labor and direct materials costs.)



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  • CreatedDecember 15, 2014
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