Refer to the data provided in Exercise 10-9.
In Exercise 10-9
Mahn Corporation produces high-quality leather belts. The company uses a standard cost system and has set the following standards for materials and labour:
Leather (3 strips @ $4) ....................... $12.00
Direct labour (0.75 hr. @ $12) ............. 9.00
Total prime cost ................................ $21.00
During the year, Mahn produced 92,000 belts. Actual leather purchased was 287,500 strips at $3.60 per strip. There were no beginning or ending inventories of leather. Actual direct labour was 78,200 hours at $12.50 per hour.
Required:
1. Break down the total variance for labour into a rate variance and an efficiency variance using the columnar and formula approaches.
2. As part of the investigation of the unfavourable variances, the plant manager interviews the production manager. The production manager complains strongly about the quality of the leather strips. He indicates that the strips are of lower quality than usual, so workers have to be more careful to avoid a belt with cracks and more time is required. Also, even with extra care, many belts have to be discarded and new ones produced to replace the rejects. This replacement work has also produced some overtime demands. What corrective action should the plant manager take?