Problem-

The empirical evidence reveals that very few firms change their standard prices and standard quantities during the fiscal year. Most firms have the following policy, "We set our standards before the fiscal year begins and we NEVER, NEVER change them during the year (except when we have to)."

Required:

1. Evaluate the "never change" policy. Does it make any sense? Why would firms adopt such a policy?
2. When would you expect firms to change their standards during the fiscal year?

Additional information-

The problem belongs to Basic Accounting and it discus about a policy that many firms follow about standard prices and standard quantities and a never, never change policy. This has been discussed in the solution.

Word limit- 220.