Setting Standards and Assigning Responsibility for Variances [LO 1]Recycled Plastics, Inc. manufactures a plastic dimensional lumber product from recycled plastic milk jugs. The company purchases consumer-recycled milk jugs in 700-pound bales and then shreds them into small pieces in its grinding department. Once ground, the plastic pieces are mixed in a hopper and extruded into shaped boards in the extrusion department. When the boards are cooled, they are used much as wood lumber would be used to build picnic tables and park benches in the fabrication department.

Recycled Plastics, Inc. has grown from a small 5-person operation to a company employing more than 100 people. The company also contains a sales department, an accounting department, an administration department, and a purchasing department. The president and owner of the company, Alan Roberts, would like to institute a standard cost system; at this point, he has been setting prices based on his rough pen-and-paper estimates of costs.

a. What standards could be set within each of the three production departments of the company? How should standards be set? Who should be involved in setting the standards?

b. What benefits might Recycled Plastics, Inc. receive from adopting a standard costing system? What disadvantages or problems might arise from adopting a standard costing system?