How does the renegotiated labor contract impact the standard cost of cars for GM?

chryslerA few years ago, Chrysler renegotiated its labor contract with the United Auto Workers (UAW) union. New hires were to be paid $14 per hour, down from the $28 per hour veteran workers received.  That cut resulted in an average combined wage and benefit rate per hour in 2011 of $49, compared to $76 per hour in 2007. In addition, the new contract specified overtime to only be paid for more than 40 hours per week, rather than for more than eight hours in one day. 

For the purposes of this discussion, assume that Chrysler uses a standard costing system for all of its products.

Questions

  1. What standard rates would be impacted by the renegotiated labor rate?  Why?
  2. What standard rates would be impacted by the change in the way overtime is calculated? Why?
  3. What variances would be impacted by the contract renegotiations if Chrysler were to not adjust its standards? Explain.

Instructor Resources

These resources are provided to give the instructor flexibility for use of Accounting in the Headlines articles in the classroom. The blog posting itself can be assigned via a link to this site OR by distributing the student handout below.  Alternatively, the PowerPoint file below contains a bullet point overview of the article and the discussion questions.  The YouTube video link below is a narration of the blog post article (no discussion questions are included in the YouTube video; those can be assigned separately.)

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License.

About Dr. Wendy Tietz, CPA, CMA, CGMA

Dr. Wendy Tietz is a professor of accounting at Kent State University in Kent, Ohio, USA. She is also a textbook author with Pearson Prentice-Hall.

2 Responses to “How does the renegotiated labor contract impact the standard cost of cars for GM?”

  1. Hi Wendy,

    I saw you at PHASE in Scottsdale. I love your site. Have you considered posting your opinions to the questions? I think that would be helpful and interesting to see how my thoughts compare to your thoughts before I present these to my students.

    • Dr. Wendy Tietz, CPA, CMA, CGMA Reply April 3, 2014 at 12:02 pm

      Hi Chris. Thanks for the feedback. The reason that I do not post my opinion is that the site can be found (by students) using a search engine – and then the value of any assignment may be reduced to instructors if the “right” answer is out there. Also, for several of these questions, there is not one “right” answer and I do not want to give the impression that there is one right answer. You can email me privately if you have questions about any particular one, though – that would be fine. Take care….

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