Cost Accounting 2

Case Study The Effect of Standards on Product and Service Quality Setting standards in an organization may be primarily to assist in the calculation of a standard cost for the product or service for management accounting purposes. Standards are also relevant for operational and customer service managers as they may affect the manufacture of the product or the quality of the service. Take McDonald's, Burger King or Coca-Cola for example. All three companies produce products that adhere to standard ingredients, albeit with some minimal regional variation. A BigMac or Whopper, for example, will contain a beef pattie that is manufactured to an exact uncooked weight. Similarly, every bottle of Coca-Cola will contain a similar amount of cola concentrate. As the ingredients are standardized according to 'recipes', a standard cost can be readily calculated and used for cost control and performance reporting. Perhaps more importantly, the customer is confident of getting a similar product on each purchase. In comparison, consider a car-hire company like Hertz or a bank like HSBC. Most service organizations will have a customer care (HSBC) or reservations (Hertz) call centre. Staff at these centres will have a standard customer handling time to adhere to perhaps three minutes. It is not always possible to deal with customer issues or make a sale in the allotted time. Exceeding the standard handling time ultimately increases costs as more staff may be needed to handle the customer call volume. By the same token, by strictly adhering to a standard handling time, customer satisfaction and quality of service may be reduced. Thus, in a service company scenario, a fine balance between standards and quality must be achieved to ensure customer satisfaction in the longer term.

Questions: a. Do you think it is possible to set standards for the delivery of services, which are primarily dictated by cost? List the services where standards can be set. (300 words) b. Is it possible to measure the delivery of a service (e.g. a mortgage application) against a set standard? Justify with an example how delivery of service can be measured. (300 words)