The role of the industrial engineer in the development of standards includes preparing
the bill of materials that specifies the types and quantities of material required;
establishing, in conjunction with the production supervisor, any allowances for scrap,
shrinkage, and waste; and participating in time studies and test runs to facilitate the
establishment of time standards.
The role of the managerial accountant in the development of standards includes
reviewing all information regarding material and labor standards received from other
departments, establishing the labor rate standards based on the type of labor required,
determining application rates for indirect costs such as material handling and
manufacturing overhead, and converting physical standards such as hours and
quantities to monetary equivalents.
Standard costing allows for management by exception. Timely reporting of variances
allows management to take corrective action before costs get out of hand. The
breakdown of variances into various components helps management trace the source
of potential cost problems. Standard costing may also motivate employees to operate
more efficiently if they are allowed to participate in setting the standards.
The standard costing system can have a negative impact on the motivation of
employees if the standards are too easily attainable or too difficult to reach. If the
standards are too easy, employees may tend to reduce productivity. If they are too
difficult, production workers may become frustrated and ignore the standards. Also,
standards that are set without production employee input may not be accepted as
realistic by those employees.