Case Teaching Package
A case teaching package is available for this case. It includes strategies for case presentation, key concepts, solutions to the assignment questions in the case, and suggestions for the most effective ways to work this case into your course.

Length
This case is 16 pages in length and its case teaching package is 6 pages.

Abstract

This case is set in rural West Virginia in 1980 in the $450 million per year "virteous clay fixtures" industry. There are 70 firms in the industry and Petersen is somewhere in the middle. The case deals with the need for formal cost control systems.

This case on standard costs and variance analysis appears deceptively straightforward with a casual reading. Actually, it is an "iceberg" case—many layers deep with most of the content lurking below the surface.

The case illustrates the calculation of standard costs in a fairly simple manufacturing setting—one product with two linked manufacturing processes. It also involves practice in variance calculations for both prime costs and manufacturing overhead. Beyond the calculations is the idea of tying together the variances into a coherent story about operations for the period being studied. And beyond the "story" is the question of whether standard costing is even appropriate for this business at all. What management controls seem appropriate, and is cost control via standards and variances one of them?

Linkages to Textbooks or Journal Articles/Fit Within a Course

It is not really possible to cover all four study questions, with discussion time, in one class period. There are thus two options for teaching the case.

One approach is to use the case as primary drill on standard cost mechanics with some attention to interpreting the variances. This will easily fill 90 minutes of discussion.

A second approach is to use the case after standard cost mechanics have already been covered. The class discussion then can move through questions 1 and 2 more quickly, since they are a review.

Overall, there are five levels of analysis in the case, as follows:

1. Illustrating how a "Standard Cost" system works
   • Set standards
   • Bookkeep transactions
   • Record variances
2. Illustrating "Variance Analysis"
   • Prime costs
   • Overhead costs
3. What do you think the variances tell us about Peterson? (Interpreting the Output)
4. Role of standard costs as a useful management control tool at Peterson Pottery
   • yes/no/maybe
5. The Concept of Standard Cost
   • Whither and Whence?

The instructor must decide how much attention to devote to each level. The case can be used as an excellent teaching vehicle at each of the five levels with sufficient time allocation.

Study Questions

1. First enter the cost activity for the month of June in the blank T-accounts in Exhibit 1 of the case. There are eight accounting entries for you to make.
2. Analyze the variances for the month using whatever format you like.
3. What conclusions are suggested regarding cost performance for the month?
4. What suggestions do you have for Mr. Petersen regarding his new standard cost system?

The downloadable file for this case is in Microsoft® Word 7.0 for Windows®.

If you do not have Microsoft Word, you can download the free Microsoft® Word Viewer 97 right here:   For Windows 3.x   For Windows 95

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