Variance interpretation You have been asked to investigate some cost problems in the Assembly Department of Ruthenium Electronics Co., a consumer electronics company. To begin your investigation, you have obtained the following budget performance report for the department for the last quarter:

Ruthenium Electronics Co.—Assembly Department Quarterly Budget Performance Report Standard Quantity at Standard Rates Actual Quantity at Standard Rates Quantity Variances Direct labor $157,500 $227,500 $ 70,000 U Direct materials 297,500 385,000 87,500 U Total $455,000 $612,500 $157,500 U The following reports were also obtained:

Ruthenium Electronics Co.—Purchasing Department Quarterly Budget Performance Report Actual Quantity at Standard Rates Actual Quantity at Actual Rates Price Variance Direct materials $437,500 $385,000 –$52,500 F Ruthenium Electronics Co.—Fabrication Department Quarterly Budget Performance Report Standard Quantity at Standard Rates Actual Quantity at Standard Rates Quantity Variances Direct labor $245,000 $203,000 –$42,000 F Direct materials 140,000 140,000 0 Total $385,000 $343,000 –$42,000 F You also interviewed the Assembly Department supervisor. Excerpts from the interview follow:

Q: What explains the poor performance in your department?

A: Listen, you’ve got to understand what it’s been like in this department recently. Lately, it seems no matter how hard we try, we can’t seem to make the standards. I’m not sure what is going on, but we’ve been having a lot of problems lately.

Q: What kind of problems?

A: Well, for instance, all this quarter we’ve been requisitioning purchased parts from the material storeroom, and the parts just didn’t fit together very well. I’m not sure what is going on, but during most of this quarter we’ve had to scrap and sort purchased parts—just to get our assemblies put together. Naturally, all this takes time and material. And that’s not all.

Q: Go on.

A: All this quarter, the work that we’ve been receiving from the Fabrication Department has been shoddy. I mean, maybe around 20% of the stuff that comes in from Fabrication just can’t be assembled. The fabrication is all wrong. As a result, we’ve had to scrap and rework a lot of the stuff. Naturally, this has just shot our quantity variances.

Interpret the variance reports in light of the comments by the Assembly Department supervisor.