Refer to the information for Bolsa Corporation.
Bolsa Corporation produces high-quality leather belts. The company’s plant in Boise uses a standard costing system and has set the following standards for materials and labor:
Leather (3 strips @ $ 4) ........ $ 12.00
Direct labor (0.75 hr. @ $ 12) ....... 9.00
Total prime cost ...........$ 21.00
During the first month of the year, Boise plant produced 40,000 belts. Actual leather purchased was 125,000 strips at $ 3.60 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 34,000 hours at $ 12.50 per hour.
Required:
1. Break down the total variance for labor into a rate variance and an efficiency variance using the columnar and formula approaches.
2. As part of the investigation of the unfavorable 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 and that 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?