2 Shannon Corporation, an American company, manufactures home furniture for export to the European market. The European furniture market is a very competitive market and consumers for this type of product are price sensitive. Ten years ago, Shannon Corporation board of directors recommended that all manufacturing facilities should be relocated in countries close to the source of raw materials. The board of directors believed that this strategy will reduce manufacturing costs, especially direct material and skilled labour cost, which make up the bulk of its manufacturing cost. Shannon Manufacturing, a subsidiary of Shannon Corporation, is one such foreign manufacturing facility located in an Asian country. Through the years Shannon Manufacturing managed to remain competitive through effective control of its manufacturing costs. For the past few years, demand for skilled labour has increase due to more foreign competitors setting up their manufacturing facilities in this Asian country. This leads to a tight labour market which led to significant increase in Shannon Manufacturing labour costs for the past few years. Due to the tight labour market, Mr. John Smith, the chief operating officer commented that "Shannon Manufacturing should plan to reduce the labour costs to maintain their current product cost standards at the same time maintaining the quality of products". Ms. Lisa Tan, human resource director of Shannon Manufacturing was given the responsibility to come up with an action plan to reduce labour costs. The following was the action plan: Replace local with foreign labour. - Identify source of foreign labour. Reduce local labour by 50% the first year and the remaining 50% the following year. Intensive training for the foreign labour Ensure new labour force maintain the same labour standards: 1.25 labour hours per unit and labour rate of $8.00 per labour hour Shannon Manufacturing implemented the action plan last year and the following are actual production data: Units produced - 10,000 units Total labour hours used - 14,000 hours Total labour cost - $113,400 Required: Calculate Shannon's labour efficiency variance, labour rate variance for last year. Explain the labour variances calculated in part (a) identify one probable cause and corrective action 3 Explain how cost variances are used to evaluate manager's performance