Question: Setting Standards Form groups of two to six persons each. The groups should each select a simple product or service. Be creative, but do not pick a product or service that is too complex. For those having difficulty choosing a product or service, some possibilities are as follows:
? One dozen chocolate-chip cookies
? A 10-mile taxi ride
? One copy of a 100-page course syllabus
? A machine-knit wool sweater
? A hand-knit wool sweater
? One hour of lawn mowing and fertilizing
? A hammer
1. Each student should individually estimate the direct materials and direct labor inputs needed to produce the product or service. For each type of direct material and direct labor, determine the standard quantity and standard price. Also, identify the overhead support needed, and determine the standard overhead cost of the product or service. The result should be a total standard cost for the product or service.
2. Each group should compare the estimates of its members. Where estimates differ, determine why there were differences. Did assumptions differ? Did some members have more knowledge about the product or service than others? Form a group estimate of the standard cost of the product or service.
3. After the group has agreed on a standard cost, discuss the process used to arrive at the cost. What assumptions did the group make? Is the standard cost an "ideal" standard or a "currently attainable" standard? Note how widely standard costs can vary depending on assumptions and knowledge of the production process.