0 Exhibit 3: Organa Co. Organa Co. has the following standards for one unit of Product C3PO: Production Input Material Labor Measure Quantity Cost per unit pounds 1.85 $3.50 hours 0.04 $12.00 During July, Luke, the purchasing agent, found a competitive price on the raw material needed to produce the C3POs and bought 100,000 pounds at $3.15 per pound. In July the company produced 48,000 C3POs with the following inputs to production. Production Input Measure Actual Quantity Actual cost/unit Material pounds 95,000 $3.15 Labor hours 2,200 $12.10 2,200 $12.10 Note: The $0.10 increase in labor cost was due to a renegotiated labor contract not under the control of the production manager. The performance report for the purchasing department indicated: Variance Material Price Variance Amount $35,000 Favorable The performance report for the production department indicated: Variance Material Usage Variance Direct Labor Rate Variance Direct Labor Efficiency Variance Amount $21,700 220 3,360 Unfavorable Unfavorable Unfavorable Upon receiving the above performance report Han, the production manager, asked for a meeting with Chewie, the plant manager, to discuss the results of the period. Both Luke, Han and Chewie attended the meeting and the discussion went as follows: Han: "Luke's 'competitive price' material messed up my department's performance." Han: Maps Translate chapter 2 manage "Luke's 'competitive price' material messed up my department's performance." Luke: "Don't blame me for the lack of control in your operation" Han: "LACK OF CONTROL! The material you bought is more difficult to handle than the one we regularly use and results in a higher level of waste in production of C3POs. With the regular material we have less than 1% of waste while with this new 'crap' you got us the waste rate is at least 5%." Luke: "Yeah, right! Now you are going to tell me unfavorable labor variances are my fault too." Han: "What part of 'the material is more difficult to handle' you didn't get. We had to incur overtime due to the delays caused by the material. And then there was the new labor contract, which is obviously not your fault." Question 23 3 pts Refer to Exhibit 3: Organa Co. Do you think Han's arguments are valid or is Luke right and Han's lack of control over his operation the reason for the poor performance? Explain your answer.