A variety of quantitative measures are used to evaluate employee performance, including standard costs, financial ratios, human resource forecasts, and operating budgets.

Required

a. Discuss the following aspects of a standard cost system.

1. Discuss the characteristics that should be present to encourage positive employee motivation.

2. Discuss how the system should be implemented to positively motivate employees. 

b. Use of variance analysis often results in management by exception.

1. Explain the meaning of management by exception.

2. Discuss the behavioral implications of management by exception.

c. Explain how employee behavior could be adversely affected when actual-to-budget comparisons are used as the basis for performance evaluation.