Lynx, Corp., manufactures windows and doors. Lynx has been using a standard cost system that bases price and quantity standards on Lynx’s historical long-run average performance. Suppose Lynx’s controller has engaged your team of management consultants to advise him or her whether Lynx should use some basis other than historical performance for setting standards. Requirements
1. List the types of variances you recommend that Lynx compute (for example, direct materials price variance for glass). For each variance, what specific standards would Lynx need to develop? In addition to cost standards, do you recommend that Lynx develop any nonfinancial standards?
2. There are many approaches to setting standards other than simply using long-run average historical prices and quantities.
a. List three alternative approaches that Lynx could use to set standards, and explain how Lynx could implement each alternative.
b. Evaluate each alternative method of setting standards, including the pros and cons of each method.
c. Write a memo to Lynx’s controller detailing your recommendations. First, should Lynx retain its historical data-based standard cost approach? If not, which of the alternative approaches should it adopt?