University:
Baltimore City Community College
Course:
ACT 221 | Principles of Financial Accounting I
Academic year:

2024
Views:

239

Pages:

2
Author:

Danny A.

Standard Setting The following example indicates how the three types of standards might be determined for the month of October 1992 for a machine that produces glass bottles. The maximum capacity of the machine is 60 bottles per hour. Normal breakage is 10 bottles per eight-hour shift. Workers are allowed two 15 minute breaks per day during which no production takes place. The demand for bottles is seasonal, and production is limited to 400 bottles per machine from September through January each year. Establishing Standards In most cases a standard should be based on a combination of tech-niques. Three methods of setting standards are discussed below. Engineering standards The concept of setting standards through engineering analysis originated at the beginning of the 20th century. Engineering standards are based on the notion that worker performance can be monitored and the labor force made more efficient through the use of time and motion studies. These techniques attempt to establish rigid time schedules to evaluate employee performance, but the methods used soon were criticized because of their dehumanizing effect upon employees. This method of setting standards was ridiculed in the media as best evidenced by the famous movie "Modern Times," starring Charlie Chaplin. Engineering standards are now most frequently applied to materials usage in an attempt to determine the amount of finished product that can be produced from a given amount of raw materials. Observed performance standards Engineering standards attempt to determine expected levels of accomplishment. Observed performance standards are based on past behavior. In effect, they set the standard at a level of past performance. Anticipated performance standards When a company acquires new production equipment that eliminates waste or increases efficiency, a standard that is based on the expected new level of performance should be set. Anticipated performance standards combine past accomplishments and future expectations in the standard-setting system.