10 Jan Warner Company manufactures and sells pottery item
Warner Company manufactures and sells pottery items. All manufacturing takes place in one plant, having four departments, each department producing only one product. The four products are plaques, cups, vases, and plates. Sam Warner, the president and founder, credits the company s success to well-designed, quality products and to an effective cost control system, which was installed early in the firm s existence to improve cost control and to serve as a basis for planning. With the participation of plant management, the company establishes standard costs for materials and labor. Each year, the plant manager, the department heads, and the time-study engineers are invited by executive management to recommend changes in the standards for the next year. Executive management reviews these recommendations and the records of actual performance for the current year before setting the new standards. As a general rule, tight standards representing very efficient performance are established so that no inefficiency or slack will be included in cost goals. The plant manager and department heads are charged with control responsibility and the variances from standard costs are used to measure their performance in carrying out this charge. No standards are set for factory overhead because management believes it is too difficult to predict and relate overhead to output. The actual factory overhead for the departments and the plant is accumulated in one pool. The actual overhead is then a
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