Montclair produces 1500 different products, including Forest Green Carnival. Its standard cost of \($2900\) per tonne is derived from:

•unionwage rates for labour costs (‘pattern bargaining’ virtually assures comparable labour costs among the major union firms, all of which are unionized);

•standard yield rates for all manufacturing steps, based on latest performance measured against long-standing norms at the Montclair mill;

•current market prices for all purchased components;

•generally accepted industry procedures for building the ‘normal’ cost of scrap into the standard cost, after deducting the offset for the market value of the scrap generated.

The standards are updated annually for changes in purchase prices, process flows and yield targets.With more than 1500 products manufactured in the mill, more frequent updating is deemed unfeasible.Manufacturing management accept that the standard cost represents best practices of the mill and thus is an appropriate basis for monitoring monthly performance. Standard costs are also helpful to simplify calculating the month-end cost of goods sold and the ending inventory for financial statements.Updated only once a year, the standard cost is stable from month to month. Management view this stability as a positive feature in monitoring monthly performance against the annual plan.

Questions

1 Why do some companies find it inappropriate to implement a standard costing system?

2 Can you think of any other uses of standard costing at Montclair?