Powerhouse Corporation acquired Underling Corporation as of January 1, 2015. Powerhouse is a well-known manufacturer of netbook computers. Powerhouse has been in business since 2010 and although it has relatively sophisticated accounting information systems, significant growth in its business has prevented the company from always having the necessary time and energy to keep these systems perfectly up to date. Where Powerhouse once manufactured 20,000 netbooks per year, the recent 2014 year-end indicates just over 45,000 netbooks were manufactured and sold. This significant growth forced Powerhouse to open a second manufacturing plant. In the table below, Powerhouse has provided the standard production cost of a single netbook computer. In contrast, Underling Corporation is a much newer organization, having only entered the technology industry in 2013. The company's newness means that most of the equipment is also relatively new and that its accounting information systems were developed more recently. The table also includes the standard production cost of a single netbook computer made by Underling. Though Underling Corporation is a small netbook producer, having manufactured and sold 5,000 and 8,000 netbooks in 2013 and 2014 respectively, its strong growth and success also makes Underling a threat to competitors (most new entrants to the technology industry do not survive the first few years). Powerhouse's two plants and Underling's single plant are all similar in size. Powerhouse's second plant is nearing capacity, which is one of the motivating factors to acquire a company that has not reached capacity. For these reasons, Powerhouse Corporation bought Underling toward the end of 2014 and is laying the groundwork for merging their organizational structures, processes, and systems.
The leadership teams of Powerhouse and Underling recently met to discuss the future of the new conglomerate. The teams took little time in verifying that the netbooks each organization were producing are nearly identical (indeed, this was one of the advantages determined during Powerhouse's due diligence work). More specifically, the performance of the netbooks and the quality of the hardware were nearly indistinguishable. Shockingly, however, the standard production costs obtained from each organization's standard cost sheets were very different.

Required:
You have been hired as a consultant to prepare a report discussing the following:
1. Why are the standard product costs materially different?
2. For what reasons would Powerhouse want to revise and not revise the standards?

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Production Cost Powerhouse Underling S 80 54 (3 hours x $18/hour) Direct materials Direct labour Manufacturing overhead (allocated on the basis of machine hours) Total unit cost $ 60 48 (4 hours x $12/hour) 22 39 $122 $164