Saddle River Electronics Company manufactures complex circuit boards for the aerospace industry. Demand for the company's products has fallen in recent months, and the firm has cut its production significantly. Many unskilled workers have been temporarily laid off. Top management has made the decision, however, not to lay off any highly skilled employees, such as inspectors and machinery operators. Management was concerned that these skilled employees would easily fin new jobs elsewhere and not return when production returned to normal levels.

To occupy the skilled employees during the production cutback, they have been reassigned temporarily to the Maintenance Department. Here they are performing general maintenance tasks, such as repainting the interior of the factory, repairing the loading dock, and building wooden storage racks for the warehouse. The skilled employees continued to receive their normal wages, which average $22 per hour. However, the normal wages for Maintenance Department employees average $12 per hour.

The supervisor of the Maintenance Department recently received the March performance report, which indicated that his department's labor cost exceeded the budget by $19,360. The department's actual labor cost was approximately 90 percent over the budget. The department supervisor complained to the controller.

REQUIRED:

As the controller, how would you respond? Would you make any modification in Saddle River's responsibility-accounting system: If so, list the changes you would make. Explain your reasoning.