Of the several uses of standard costing, one of the mostcontroversial is using these standards for performance evaluationof an individual, team, or unit. Consider the labor efficiencyvariance and assume it is one of the measures for a companyâsperformance evaluation of a business unit. When might or might notvariance from such a standard be an appropriate measure? How wouldthis metricâs effectiveness as a performance measure be affected bya decrease in demand or changes in production volume? Would itseffectiveness be different for a service unit than a manufacturingunit? In the event that it is not effective as a performancemeasure, does it have a strong purpose? How does this compare withother variances from standard?
Of the several uses of standard costing, one of the mostcontroversial is using these standards for performance evaluationof an individual, team, or unit. Consider the labor efficiencyvariance and assume it is one of the measures for a companyâsperformance evaluation of a business unit. When might or might notvariance from such a standard be an appropriate measure? How wouldthis metricâs effectiveness as a performance measure be affected bya decrease in demand or changes in production volume? Would itseffectiveness be different for a service unit than a manufacturingunit? In the event that it is not effective as a performancemeasure, does it have a strong purpose? How does this compare withother variances from standard?
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