Given below is the absorption cost reconciliation or operating statement for the Lawson Ltd for the George in July 2016, showing all the variances. Favourable variances (E) 504,000 8,000 11,400 Adverse variances Total standard cost Variances: Material Price 6,800 Material Usage Labour rate Labour efficiency 14,000 Fixed overhead expenditure Fixed overhead 6,000 efficiency Fixed overhead 6,000 capacity 32,800 5,000 24,400 32,800 Add adverse variances Less favourable variances Total actual cost (24,400) 512,400 Upon investigation of the variances, the following is discovered: 1. The supplier of the material has permanently increased its prices but has also significantly improved the quality of the material. 2. Some of the workforce used in the period was of a lower grade than normal and they were not as familiar with production process as the normal labour force. 3. Lawson Ltd has recently reduced the amount of factory space that it rents but the standard rental cost has not been adjusted. You are to write a report to the operations manager identifying possible causes of the variances and making any suggestions for action that should be taken