Missouri Briar Company is a manufacturer of corncob pipes. The company has grown rapidly over the past |0 years. Originally a small supplier of cheaply made pipes for novelty and souvenir shops, the company now supplies large quantities of high-quality pipes to pipe shops throughout the country. Several grades of pipes are sold. The best pipes—

Grade A—smoke more sweetly than the finest imported briar pipes. Demand continues to grow. Profit seems to have leveled off over the past two years, however. Pipe production does not seem to be as efficient as it used to be.

Producing a pipe involves several distinctly different operations that require special labor skills. Production starts with “rough cobbing,” in which seasoned cobs are cut and drilled. Next comes a critical “sorting” operation, in which the cut and drilled cobs are sorted by quality and shape and sent to different departments set up to produce different grades of pipes.

In these departments, “plugging,” “stemming,” and “finishing” operations are performed. More skill is required, and a great deal more time is taken in the production of Grade A pipes than in the production of Grade B or Grade C pipes. “Final grading” is the last operation performed. It is an inspection process aimed at maintaining quality.

Grade A pipes that do not pass inspection are downgraded and sold as Grade B or C pipes. Grade B pipes that do not pass inspection are downgraded and sold as Grade C pipes. Grade C pipes that do not pass inspection are sold as novelties.

During the last two years Alex Hrechko, the president of Missouri Briar Company, has noticed that the average direct materials and direct labor cost per pipe have increased considerably, although he is not sure why. Alex is worried that things are out of control.

Some data from the last three years are presented in the following table:

Required: Discuss in what ways the data given in the table are deficient for evaluating the performance of the company’s manufacturing operations. Also discuss how a stan- dard cost system could improve the president's ability to control the manufacturing operations of his company.

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