Lynx Corp. manufactures windows and doors. Lynx has been using a standard cost system that bases cost and efficiency standards on Lynx’s historical long-run average performance. Suppose Lynx’s controller has engaged your team of management consultants to advise him or her whether Lynx should use some basis other than historical performance for setting standards. Requirements List the types of variances you recommend that Lynx compute (for example, direct materials cost variance for glass). For each variance, what specific standards would Lynx need to develop? In addition to cost standards, do you recommend that Lynx develop any nonfinancial standards? There are many approaches to setting standards other than simply using long-run average historical costs and quantities. a. List three alternative approaches that Lynx could use to set standards, and explain how Lynx could implement each alternative. b. Evaluate each alternative method of setting standards, including the pros and cons of each method. c. Write a memo to Lynx’s controller detailing your recommendations. First, should Lynx retain its historical data-based standard cost approach? If not, which of the alternative approaches should it adopt?
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Lynx Corp. manufactures windows and doors. Lynx has been using a
Requirements
- List the types of variances you recommend that Lynx compute (for example, direct materials cost variance for glass). For each variance, what specific standards would Lynx need to develop? In addition to cost standards, do you recommend that Lynx develop any nonfinancial standards?
- There are many approaches to setting standards other than simply using long-run average historical costs and quantities.
a. List three alternative approaches that Lynx could use to set standards, and explain how Lynx could implement each alternative.
b. Evaluate each alternative method of setting standards, including the pros and cons of each method.
c. Write a memo to Lynx’s controller detailing your recommendations. First, should Lynx retain its historical data-based standard cost approach? If not, which of the alternative approaches should it adopt?
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