The Hamilton Corp. uses a standard cost system, and computes variances using the methods described in this chapter. Consider what impact each of the following actions might have on the company’s labor and materials usage and rate variances, and on other company costs:

A. The purchasing department buys unusually cheap raw materials. The material is inexpensive because it is poor quality, and requires extra labor to process.

B. The purchasing department buys a very large quantity of material, of the standard level of quality, and gets a quantity discount. The large shipment will satisfy the needs of production for nine months.

Normally the company keeps two weeks of inventory on hand.

C. The company decides to reduce its average payroll costs by firing all the older, more highly skilled workers. They are replaced by slower, but lower paid, employees.

D. The production supervisor orders employees not to take breaks, and to report working less time than they actually do.