Alexander Company has experienced increased production costs. The primary area of concern identified by management is direct labor. The company is considering adopting a standard cost system to help control labor and other costs. Useful historical data are not available because detailed production records have not been maintained.
Alexander has retained an engineering consulting firm to establish labor standards. After a complete study of the work process, the consultants recommended as a labor standard one unit of production every 30 minutes or 16 units per day for each worker. They further advised that Alexander's wage rates were below the prevailing rate of $8 per hour.
Alexander's production vice president thought this labor standard was too tight and the employees would be unable to attain it. From his experience with the labor force, he believed a labor standard of 40 minutes per unit or 12 units per day for each worker would be more reasonable. Alexander's president believed the standard should be set at a high level to motivate the workers, but he also recognized the standard should be set at a level to provide adequate information for control and reasonable cost comparisons.
After much discussion, the management decided to use a dual standard. The labor standard recommended by the consultants would be employed in the plant as a motivation device, but a standard of 40 minutes per unit would be used in management reporting. The workers would not be informed of the standard used for reporting purposes. The production vice president conducted several information sessions prior to the final implementation of the new system in the plant, informing the workers of the new standard cost system and answering questions. The new standards were not related to incentive pay, but were introduced at the same time wages were increased to $8 per hour.
The new standard cost system was implemented on April 1, 1998. At the end of six months of operation, the following statistics on labor performance were presented to top management:

Raw material quality, labor mix, and plant facilities and conditions have not changed to any great extent during the six-month period.
Required:
a. Discuss the impact of different types of standards on motivation, and specifically discuss the effect on motivation in Alexander Company's plant of adopting the labor standard recommended by the consulting firm.
b. Evaluate Alexander Company's decision to employ dual standards in its standard cost system.

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Apr 8,160 4,800 May June July ug Sep 8,000 7,200 4,800 7,040 4,960 Production units Direct labor-hours Variance from labor standard Variance from reporting standard 7,520 4,640 6,880 4,800 4,640 $4,320 U $3,840U $5,280 U $7,200 U $8,160u 58,640 U 0 51,280 U $1,600 U $3,840F 54,160 F 2,240 F