=+11-53 KK Price and efficiency variances, problems in standard-setting, benchmarking OBJECTIVES 1, 4, 7 New Fashions manufactures shirts for retail chains. Andy Jorgenson, the management accountant, is becoming increasingly disenchanted with New Fashions’s standard costing system. The budgeted and actual amounts for direct materials and direct manufacturing labour for June were:

Budgeted amounts Actual amounts Shirts manufactured 6 000 6 732 Direct materials costs $30 000 $30 294 Direct materials units (rolls of cloth) 600 612 Direct manufacturing labour costs $27 000 $27 693 Direct manufacturing labour-hours 1 500 1 530 There were no beginning or ending inventories of materials.

Standard costs are based on a study of the operations conducted by an independent consultant six months earlier. Jorgenson observes that since that study he has rarely seen an unfavourable variance of any magnitude. He notes that, even at their current output levels, the workers seem to have a lot of time for sitting around and gossiping. Jorgenson is concerned that the production manager, Charlie Fenton, is aware of this but does not want to tighten up the standards because the lax standards make his performance look good.

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