Cinturon Corporation produces high-quality leather belts. The companys plant in Boise uses a standard costing system and

Question:

Cinturon 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 @ $6) ....................................$18.00
Direct labor (0.75 hr. @ $16)............................ 12.00
Total prime cost............................................... $30.00

During the first month of the year, the Boise plant produced 92,000 belts. Actual leather purchased was 287,500 strips at $5.40 per strip. There was no beginning or ending inventories of leather. Actual direct labor was 78,200 hours at $16.50 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. Based on a review of control charts for the past several months, the plant manager is confident that the materials usage and labor effects mentioned by the production manager are largely due to the cheaper materials used in the recent months. Suppose that the sum of the MPV and MUV is $103,500 F. Now add the LEV and LRV to this total materials variance. What corrective action should the plant manager take? Finally, what data analytic types were involved in this decision process (see Exhibit 2.2 fora review of data analytic types)?