To be able to use a standard costing system, a company must develop standards that will serve as the guide for the amount of a resource (e.g., direct materials, direct labor) that should be consumed in the production of a unit. One way to accomplish this is to conduct a time or process study that examines the work of one individual whose results are then used as the standard. This standard serves as a base against which actual results will be compared and ultimately affects performance evaluations.
Suppose you work for an ice packaging Service Company and your job is to fill each plastic bag with 7 pounds of crushed ice and close the bag with a metal fastener. These bags are then delivered to local grocery and convenience stores for sale. Assume also you were chosen as the subject for a time or process study. Because some amount of spillage is normal, the study will measure the amount of ice each bag has. Your time to fill and fasten each bag will also be measured. These numbers will then serve as company standards for everyone within the company doing your job.
1. Is there any motivation for you to intentionally spill some ice or to purposefully take longer than normal to fill and/or fasten the bag?
2. How might these standards affect employees (including you) later?
3. How might the company mitigate this problem?