Gardner, Inc.’s practice of assigning responsibility for differences between standard and actual costs is problematic from diverse viewpoints, including the considerations of managerial staff retention and unjust risk-sharing. In the current system, the production department manager is responsible for cost overruns in kitchen cabinet manufacturing projects. This responsibility exists regardless of peculiar order completion requirements, such as extremely short deadlines.
The problem is that this model creates a situation in which the sales department accepts large and rush orders with possible unforeseen expenses, thus urging the production department to take risks. For instance, the production manager may need to alter project completion schedules without causing significant deviations from standard costs or incurring overtime premium costs, which is nearly impossible. Basically, the sales department delegates its responsibility to promote stable and high revenues to the production team that should be held responsible only for completing projects on time and guaranteeing the final product’s acceptable quality.
There are two recommendations to eliminate the problem and improve responsibility distribution patterns affecting Gardner, Inc.’s departments. Firstly, the sales team should handle issues linked with changes to production costs and communicate information on possible changes to customers when accepting orders. Secondly, the standard cost method enables the use of pre-established costs and maximizes responsibility while guiding the entity’s economic activity (Andrei et al., 2018). Without losing these advantages, Gardner, Inc. can include possible labor rate variances in its calculations of standard costs, thus developing a new standard cost for urgent orders.
Finally, Gardner, Inc.’s process for allocating responsibility for cost overruns requires improvement, such as increasing the sales team’s accountability. Also, diversifying the company’s standard cost system by treating urgent orders as a separate category with specific standard costs can improve the company’s ability to handle non-standard orders. These efforts will make the actual costs less unpredictable while also creating a healthier workplace environment.
Andrei, G., Galmeanu, R., & Mariana, Z. (2018). The standard cost method and the opportunity to apply it to economic furniture-producing entities. Social-Economic Debates, 7(2), 72-78. Web.