Some cost problems have been identified in the Assembly Department of Schumann Electronics Co., a consumer electronics company. The department’s budget performance report for the last quarter follows:

The performance reports from the Purchasing and Fabrication departments are also available for the same period:

The following are some excerpts from an interview with the Assembly Department supervisor:

Q: What explains the poor performance in your department?

A: Listen, you’ve got to understand what it’s been like in this department recently. Lately, it seems no matter how hard we try, we can’t seem to make the standards. I’m not sure what is going on, but we’ve been having a lot of problems lately.

Q: What kind of problems?

A: Well, for instance, all this quarter we’ve been requisitioning purchased parts from the materials storeroom, and the parts just haven’t been fitting together very well. I’m not sure what is going on, but during most of this quarter, we’ve had to scrap and sort purchased parts—just to get our assemblies put together. Naturally, all this takes time and material. And that’s not all.

Q: Go on.

A: All this quarter, the work we’ve been receiving from the Fabrication Department has been shoddy. I mean, maybe around 20% of the stuff that comes in from Fabrication just can’t be assembled. The fabrication is all wrong. As a result, we’ve had to scrap and rework a lot of the stuff. Naturally, this has just shot our quantity variances. 

As a group, analyze and interpret the variance reports and the comments by the Assembly Department supervisor.

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Schumann Electronics Co.-Assembly Department Quarterly Budget Performance Report Standard Quantity at Standard Rates Actual Quantity at Standard Rates Quantity Variances $ 70,000 U Direct labor Direct materials Total $157,500 $227,500 297,500 385,000 87,500 U $455,000 $612,500 $157,500 U Schumann Electronics Co.-Purchasing Department Quarterly Budget Performance Report Actual Quantity at Standard Rates Actual Quantity at Actual Rates $385,000 Price Variance Direct materials $437,500 $(52,500) F Schumann Electronics Co.-Fabrication Department Quarterly Budget Performance Report Standard Quantity at Actual Quantity at Quantity Variances Standard Rates Standard Rates Direct labor $245,000 $203,000 $(42,000) F Direct materials 140,000 140,000 Total $385,000 $343,000 $(42,000) F