Resolution Company Is Meeting with the Consultants It Hired to Help

question 90

Essay

Resolution Company is meeting with the consultants it hired to help it with problems arising from its increasing sales and increasing production to meet them. The consultants have informed the company that they need to make price concessions in order to have their product sold over a large area. To do this, costs need to be reduced and controlled. They recommended installation of a standard costing system and a flexible budgeting system.
The CEO took the recommendations back to the company management, explained to all, and a team was set up to develop the standards. The team was composed of the purchasing manager, processing manager, production engineer, and V.P. of sales. Each member of the team, rather than working to develop standards, came up with reasons why they wouldn't work. The team made its report to the CEO who told them to come up with the standards or he would have the consultants set them.
Required:
(a) What are the advantages and disadvantages of standard costing?
(b) What has gone wrong in this situation and will having the outside consultant do the work change anything?

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Definitions:

Forecasted Sales

An estimate of the amount of revenue that a company expects to generate from the sale of goods or services in a future period.