Raymond Stone, a recent business school graduate, has taken a job with Farben Corporation as production manager. His job is to see that production is efficient. After his first month, he is given this memo.

Performance Report

Raymond Stone: ………………………………………………………...$32,000 Unfavorable

The following data are also known for Raymond’s first month:

Units produced . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 750 units

Direct labor used. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,600 hours at $20

Standard direct labor hours per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 hours at $16

1. What explanation would you give for the total unfavorable variance (which combines both labor rate and labor efficiency variances) if you were in Raymond’s position? Keep in mind the personnel department is responsible for hiring and firing employees and setting wage rates.

2. What might be theoretically wrong with a conclusion that Raymond is not at all responsible for labor rates?