Al Kabeer Sugar Mills is a medium sized business, manufacturing refined cane sugar. To produce 100/ kg bag of sugar approximately 1 ton of sugar cane and other materials are used. Two types of workers skilled and unskilled work continuously in 3 shifts in production line. Production is continuous in distinct stages and the product is standardized.

Standard costing system was introduced recently in the company to have effective control over the cost of material and labor.

While fixing standards for material due allowance was made for losses. Material standards were fixed for a period of 6 month based on the current conditions.

Labor standards were also fixed for a period of 6 months but no allowance was made for time loss while fixing the standard for labor. Standard for labor rate was based on current rate of pay without considering any anticipated variations in the near future.

The responsibility for attaining the standards were not fixed properly.

The management of the company is not satisfied with the effectiveness of standard costing system in controlling the costs. The system has actually increased the cost and caused more confusion among the employees in terms of the reporting responsibility.

a) What are the issues with the standard costing system of Al Kabeer Mills? Explain how the company can fix the standards for material and labor and effectively implement standard costing system.(

b) Discuss whether the types of standards currently used for material and labor are practically effective in cost control.

c) Explain in your own words the steps in implementation of standard costing system.