Tasha Smith is the president of Modern Machinery, Inc., which manufactures flexible manufacturing systems used in a wide variety of production processes. To remain competitive, Modern is continually improving product performance by increasing the sophistication of electronic controls, diversifying product offerings, and enhancing the quality of existing products. Many of Modern's customers dictate specific performance expectations and system designs. Modern employs a large engineering staff that coordinates system requirements with the designed components. Each manufactured system requires extensive design work and often results in over a hundred individual component drawings. Each drawing is developed in the engineering department and contains detailed manufacturing specifications. The use of computer-assisted design (CAD) allows Modern to provide system designs in an efficient manner, and has reduced design time. Since each system is manufactured to meet specific requirements, very few parts are interchangeable between systems.

Tasha is considering implementation of a standard cost accounting system. Her objective is to identify both rate and usage variances related to material and labor that are in excess of allowable standards. Tasha will require the engineering department to develop a standard cost sheet with each CAD design. The standard cost sheet will identify the amount of materials that should be used. For components already in use, the standard will assume the cost rates for materials that existed at the beginning of the year. For standards for new components, material costs will be taken from supplier catalogs. Standards for labor will be developed jointly by product and process engineers.

Tasha has determined that material price variances will be the responsibility of the purchasing department. Material usage and labor efficiency variances will be the responsibility of shop supervisors in each of four manufacturing areas (Mill Shop, CNC Manufacturing, Electrical Shop, and Assembly). The labor rate variance will be the responsibility of the human resource department.

Required Prepare a memo to Tasha Smith giving your advice concerning her plans. Specifically comment on the purpose of a standard cost system, the cost-benefit element of implementing such a system, and the inherent weaknesses in Tasha's proposed implementation plans.