Jackson Sound produces amplifiers and mixing boards in a modern production facility. The company is well known for its quality products. Each item is thoroughly tested before it leaves the plant. Worker are highly skilled. The company considered direct labor to be a fixed cost because it does not reduce the workforce when there is a small downturn in business, and it can accommodate production increases of up to 10% due to excess capacity. In the production process, worker in the circuit department prepare circuit boards that are sent to the case department for installation in custom cases. In the past 6 months, workers in the circuit department have pursued a number of process improvement initiatives that have resulted in much shorter production times. For example, the model LE7 amplifier used to require 12.5 standard labor hours in the circuit department, but the standard was revised last month to only 10.4 standard hours. Although the circuit department has made production improvements, the CFO of the company, Christopher Carlson, is concerned about a major build up of in process inventory that is occurring between the circuit department and the case department. "What is going on?" he asked his assistant, Megan Welles. " I was walking through the plant yesterday and I saw a tremendous amount of in process inventory. I though we had implemented a JIT system and we were working to balance our production process. That investment in work in process is just going to drag down company performance." Megan replied that the source of the problem might be related to the process improvements and the fact that bonuses for production workers are tied to a standard cost performance. Christopher, however, did not see how a process improvement could actually make things worse. Question) assume that the company is reluctant to fire workers in the circuit department even if they are not really needed. (After all, they have just worked hard to improve productivity.) Given the production improvements and the institution of new standards, explain why the circuit department has an incentive to overproduce (i.e., produce more output than can be handled by the case department). (Hint: If the circuit department does not overproduce, what will be the effect of the process improvements on the labor efficiency variance?)