Ian, Inc., is a personal computer manufacturing company. It uses a standard cost system to record its production cost and the system allows for a small level of product defects. However, in its variance reports for last quarter, lan’s Assembly Department incurred large unfavorable labor efficiency and volume variances. The assembly supervisor claims that these variances were caused by the inefficiency of the Inspection Department. In the last three months, the quantity of parts approved by the Inspection Department have not been sufficient to meet the production schedule. As a result, the assembly workers have had to wait for parts. Therefore, the Assembly Department did not meet its production schedules. On the other hand, the supervisor of the Inspection Department argues that the unfavorable variances in the Assembly Department were not caused by his department. Instead, the main problem is caused by the major supplier. The inspection supervisor believes that the major supplier does not maintain a strict quality control standard. As a result, many computer parts are inferior and the Inspection Department has to increase its worker-hours to inspect the parts. Therefore, the Inspection Department also has unfavorable labor efficiency variances. Both supervisors claim that they should not be held accountable for their unfavorable variances.

Required:

Suggest ways that this matter should be settled. Make recommendations for any needed changes in the reporting system.