Cornerstones of Managerial Accounting 4th Edition by Maryanne Mowen, Don Hansen, Dan Heitger

Exercise 15

Bolsa 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:
During the first month of the year, Boise plant produced 40,000 belts. Actual leather purchased was 125,000 strips at $3.60 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 34,000 hours at $12.50 per hour.
Labor Variances
Refer to the information for Bolsa Corporation (p. 431).
Required:
1. Break down the total variance for labor into a rate variance and an efficiency variance using the columnar and formula approaches.
2. Conceptual Connection: 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. What corrective action should the plant manager take