LatheMasters Company is a small manufacturer of wooden household items. A. Rivkin, corporate controller, plans to implement a standard cost system. Rivkin has information from several co-workers that will be useful in developing standards for the company's products.
One of the company's products is a wooden cutting board. Each cutting board requires 1.25 board feet of lumber and 12 minutes of direct labor time to prepare and cut the lumber. The cutting boards are inspected after they are cut. Because the cutting boards are made of natural material that has imperfections, one board is normally rejected for each five that are accepted. Four rubber foot pads are attached to each good cutting board. A total of 15 minutes of direct labor time is required to attach all four foot pads and finish each cutting board. The lumber for the cutting boards costs $3.00 per board foot, and each foot pad costs $.05. Direct labor is paid at the rate of $8.00 per hour.
Required:
(1) Develop the standard cost for the direct cost components of the cutting board. The standard cost should identify (a) the standard quantity, (b) the standard rate, and (c) the standard cost per board for each direct cost component.
(2) Identify the advantages of implementing a standard cost system.
(3) Explain the role of each of the following persons in developing standards:
(a) Purchasing manager
(b) Industrial engineer
(c) Cost accountant