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Mr. Guglielmi says Meijer “expects employees to be at 100% performance to the
standards, but we do not begin any formal counseling process until the performance
falls below 95%.” If a cashier is “challenged in their position,” he says, the company
provides “training and counseling to help improve their performance. If this doesn’t help
them, there are various alternatives.” He declined to elaborate.
Customers at several Michigan stores said managers appeared to be opening fewer
checkout lines than before, relying on faster-moving cashiers and self-checkout systems
to pick up the slack. “I do notice that the cashiers go a little faster, but it doesn’t
necessarily matter because there aren’t that many cashiers,” says Melissa Shoe, 20, a
regular shopper at the Lansing store. Before Meijer installed its system a couple of
The approach is rooted in the time-motion theories of Frederick Taylor from the early
20th century, which were used to break down tasks into units to determine the
maximum work a person could do. Harold B. Maynard, the company’s founder, began
his career in 1924 as a time-study engineer at Westinghouse, then formed his own
company. For 70 years, that company worked primarily for manufacturers.
In 2000, after demand from manufacturing industries declined, the company shifted into
retail. These days, about 80% of its $20 million in annual revenue comes from retail.
“As manufacturing gets shipped overseas, many people thought that would be the end
of engineered standards,” says John Lund, a professor of industrial engineering at an
extension program for workers at the University of Wisconsin. “In fact, we are not seeing
that at all. We are seeing a renaissance of engineered standards in the retail industry.”
Hannaford Bros., a subsidiary of the Belgian Delhaize Group, says OWO helped it
reduce labor costs at more than 150 supermarkets in New York and New England. Just
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determine how many workers to schedule at any given time. The methods enabled it to
lower its labor budget by 8%, he says.
Engineering Meets Service
Unlike factory workers, most retail clerks deal face–to-face with customers, which raises
questions about how such labor standards can affect customer relations.
“If it is the type of job where you can lay out every element of the job, then you might get
customer service and other variables such as store layout or sales volume, which can
affect how long it takes employees to perform certain tasks. In a study late last year for
a large clothing chain, for example, OWO determined that for every customer buying
something in a high-traffic urban store, 2.63 items were “disturbed” and required
straightening or reorganizing. That compared to 1.98 items in quieter suburban stores.
pet supplies.
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readers to cash registers so cashiers can sign in for work directly at their registers, not
at a time clock, “saving minutes of wasted time,” says Roy Smith Jr., the former director
of Meijer’s Benton Harbor, Mich., store. The chain also installed a system to monitor
how many cases per hour stock workers were loading onto shelves.
In the late 1990s, the typical high-traffic Meijer store employed about 700 workers and
nearly 50 managers, says Mr. Smith, who worked at nine Meijer stores over 15 years
was “like a C-minus” grade, says Mr. Smith. Those who fell below 95% of the
baseline—a score of 95—faced penalties or weeding out. Meijer posted weekly “cashier
productivity” notices in employee-only areas.
Store managers used the scores to decide whether new cashiers still in the 90-day
probationary period should be transferred, or fired. Longtime employees also were
scrutinized. In a given week, up to one-fifth of the scores posted were below 95, current
and former cashiers say.
Before the scoring system, “nobody knew who was good,” says Mr. Smith. Afterwards,
managers knew “this person isn’t as strong as that person. It becomes really obvious,
and you’re able to put a number to that.” Cashiers were counseled for as many as
seven weeks on improving performance; those who didn’t lost their jobs, he says.
Employees with scores below 95 are told: “Get your percentage up, and we’ll have a
cigarettes located in another part of the store, and the cashier has to get them. Others
forget items and retreat to the aisles to find them.
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Buying Time
Operations Workforce Optimization (OWO), a unit of Accenture, breaks down tasks into
quantifiable units, devises standard times to complete them, then writes software to help
clients keep watch over their workforces. Here are some ways it trimmed time from
common tasks at an unnamed grocery retailer.
Produce
• Bananas, a top-selling item, are stocked by grasping inverted bunches by the
tips. Flipping the box over prior to stocking allows the employee to grasp
multiple bunches at once by the stems. Projected savings: $100,000 per
year.*
Bakery
• Some breads and rolls are packaged in plastic bags and closed with twist
ties. Innoseal or bag clips reduce the manual motions required. Projected
(*Savings generally vary according to the number of stores in a chain.)
“Recovering” Items
At clothing retailers, OWO defines “recovery” as collecting an item that has been left
behind or disturbed by a shopper. Tasks vary, depending on the scenario — re-hanging
clothing need to get rehung and replaced back out on the sales floor. It takes more
than 11 seconds per shopper to recover an item.
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In low-traffic (often suburban) stores, 15 items need to be returned to the floor,
for every 100 customers who buy something, and it takes about six seconds per
shopper to recover an item.
This kind of behavior, of course, tends to tick off other shoppers waiting in line, but
some of them sympathize with the cashiers. “I am 84, and I get behind some old person
and I can’t stand it,” says one shopper at the Owosso store. “They go into their purse
scores below 95. She was told she would have to move to another department, at lower
pay, if her score didn’t improve, she says. “Make sure you’re just scanning, grabbing,
bagging,” she recalls being told. She quit after nearly one year on the job.
Two shoppers interviewed in front of the Okemos store said they were told by cashiers
that they were being timed. “There was one particular cashier that was in so much of a
hurry,” recalls Ms. Long, the regular customer at that store. “And he was saying, ‘When
you’re afraid you’re going to lose your job, you’re going to make more mistakes.’ ”
The United Food and Commercial Workers Union, which covers about 27,000 Meijer
employees in Michigan, including 3,000 cashiers, has filed a grievance against the
company in connection with the cashier-performance system, saying it has found flaws
in it. The union says the matter is headed for arbitration. The Meijer spokesman
declined to comment.
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Ms. Barry, the DeWitt cashier, who says her weekly score usually hits or exceeds the
baseline, admits to using a few tricks to improve her times. She makes heavy use of the
register’s “suspend button,” which stops the clock. The system detects when remote
Write to Vanessa O’Connell at vanessa.o’connell@wsj.com
______________________________________________________________________
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14–51 Master Budgets, Flexible-budgets, and Profit-Variance Analysis (60 minutes)
1.
Flexible- Sales Master
Actual Budget Flexible Volume (Static)
Results Variance Budget Variance Budget
Unit sales 50,000 0 50,000 10,000F 40,000
Sales $450,000 $50,000U $500,000 $100,000F $400,000
Variable costs 375,000 25,000U 350,000 70,000U 280,000
Contribution margin $75,000 $75,000U $150,000 $30,000F $120,000
2. Profit variances for December:
a. Total Master (Static) Budget Variance = actual operating income − master
budget operating income = $10,000 − $45,000 = $35,000U
b. Total Flexible-Budget Variance = actual operating income − flexible-budget
operating income = $10,000 − $75,000 = $65,000U
contribution margin − master budget contribution margin = $150,000 −
$120,000 = $30,000F
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e. Selling Price Variance = actual sales revenue − flexible-budget sales
revenue = $450,000 − $500,000 = $50,000U
= $50,000U
3. The labels “favorable” or “unfavorable” in the context of the type of profit-variance
report prepared above have a very narrow meaning: impact of the variance in
question on the short-run operating profit of the organization. Whether individual
4. The total flexible-budget variance contains the net (or composite) effect of selling
price per unit being different from planned, variable cost per unit being different
from planned, and total fixed cost being different from planned. In the calculation
individual costs (e.g., direct materials, direct labor, or, as we show in Chapter 15,
variable manufacturing overhead). In turn, these variances can be broken down
into price (rate) and efficiency (quantity) components.
5. The purpose of this question is to encourage students to think critically about the
use of traditional financial-control tools (viz., standard costs, flexible budgets, and
standard-cost variances) as part of a comprehensive management accounting
and control system. These criticisms are especially pronounced in an “advanced
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Criticisms of Standard Costing
1. Variances are too aggregate and too late to be useful. The notion of aggregation
means that the organization may achieve local optimizations (various subunits of
the organization) at the expense of global optimization of results. This criticism can
also be framed as a problem in “goal congruence.” The timeliness issue relates to
labor and material resources. Bar-code and related technologies enable
organizations to monitor resource consumption on a real-time basis.
2. Variances are not tied to specific product lines, production batches, or FMS cells.
This is a variation of the data-aggregation argument presented above in (1).
3. Standard-costing systems focus too much on direct labor. In advanced
manufacturing settings, labor (especially what we have traditionally called “direct
means that individual standards are soon outdated.
6. Traditional standard costs are not defined broadly enough to include important
costs, such as the total cost of ownership. Thus, the focus on minimizing a portion
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8. A variation of argument #6 above is that traditional standard-costing systems tend
to focus too much on cost minimization, rather than increasing product quality or
customer service.
The instructor might provide, as a basis for discussion, the following plan that could be
used to evaluate the operating performance of a manufacturing facility each period:
a. Production processing activity: Cycle time, manufacturing-cycle efficiency, and
productivity measures.
i. Machine maintenance: Machine downtime (minutes); bottleneck machine downtime
(minutes)
Note the focus on activities in the above hypothetical performance evaluation scorecard.
For each major activity (or business process) there would logically be, each period, one
or more strategic objectives. The extent to which these objectives are being
accomplished is assessed through the monitoring and reporting of non-financial
performance indicators such as those listed above. These non-financial performance
metrics would complement the financial performance measures (e.g., standard costs,
flexible budgets, and related variances) in a comprehensive management accounting
and control system.
Benefits/Advantages of Standard Cost Systems
1. Provides a good basis for cost comparisons. To the extent that “cost” is a critical
variable on which the organization competes, a standard cost system with
associated variances (based on flexible budgets) can be a useful component of
for performance evaluation purposes recognize the limitations and criticisms of
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traditional standard cost systems. That is, it is important for such users to
5. Standard costs can be used for external reporting purposes (as long as such
standards do not deviate significantly from actual costs).
14–52 Summary Problem: All variances; Spreadsheet Application (75-90 minutes)
1. a. Direct materials price variance (calculated at point of production):
▪ Formula: AQ × (AP −SP), where AQ = units of raw material used in
production during the period
▪ Calculation of actual prices per unit of raw material =
Actual cost AQ
Housing units $44,000 2,200 = $20 per unit
Printed circuit boards $75,200 4,700 = $16 per unit
Reading heads $101,200 9,200 = $11 per unit
b. Direct material usage variance:
▪ Formula: SP × (AQ − SQ)
▪ Calculation of standard quantities (SQ) = Units Produced × Standard
quantity of raw material inputs per unit of output:
Housing units 2,200 × 1 = 2,200 parts
Printed circuit boards 2,200 × 2 = 4,400 parts
Reading heads 2,200 × 4 = 8,800 parts
▪ Calculation of variance:
c. Direct labor efficiency variance:
▪ Formula: SP × (AQ − SQ)
Calculation of standard hours allowed for output achieved (SQ) = Actual units of output
× Standard labor hours per unit of output: