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Finance Case Study Integrated Lighting Case Study

(Actual Hours x Actual Rate) -- (Standard Hours x Standard Rate) = Total Labour Variance (TLV). b. (Actual Hours x Actual Rate) -- (Actual Hours x Standard Rate) = Labour Price Variance (LPV).

c. (Actual Hours x Standard Rate) -- (Standard Hours x Standard Rate) = Labour Quantity Variance (LQV).

a)

Total Labour Variance (TLV)

734,116.49

Labour Price Variance (LPV)

437,539.55

c)

Labour Quantity Variance (LQV)

296,576.94

2003

2004

2005

2006

2007

Standard Labour Rate (2007) ($)

16.00

16.00

16.00

16.00

16.00

Actual Labour Rate (2007) ($)

19.50

20.09

20.69

21.31

21.95

Overpayment on Labour Rate ($)

3.50

4.09

4.69

5.31

5.95

37%

Revenue per Full Time Employee ($)

6,481,481.48

6,717,407.41

6,697,735.00

6,800,668.60

6,880,557.86

% change in Revenue per FTE (year on year)

3.64%

-0.29%

1.54%

1.17%

Lines Shipped per Full Time Employee

21,929.68

23,574.41

24,894.58

26,667.00

29,623.11

% change in Lines Shipped per FTE (year on year)

7.50%

5.60%

7.12%

11.09%

Lines Received per Full Time Employee

7,270.40

7,488.60

7,148.36

7,613.09

8,336.36

% change in Lines Received per FTE (year on year)

3.00%

-4.54%

6.50%

9.50%

Total Lines per Full Time Employee

19,215.00

20,595.56

21,408.71

22,989.93

25,585.97

% change in Total Lines per FTE (year on year)

7.18%

3.95%

7.39%

11.29%

Assume rate has remained static over past 5 years

Question 4

Recommendations for Management for improvement include the following:

1. Production, Management Change, Performance Balanced Scorecard and Management Monitoring all need to be addressed.

2. Daily, weekly and monthly variance reports on key statistics (overtime vs. expected; budget vs. actual) must be implemented and a red flag system introduced where there is a variance greater than the accepted norm.

3. Training days to be reduced...

Report to Board on key statistics from each segment -- "no surprises" operation model on a monthly basis; full disclosure is required to demonstrate management controls are effective.
5. Identify who is directly responsible for the problem (i.e. Wayne or Jason). Jason is newly appointed therefore his probation period must be extended to ensure that the company's options are kept open in the event he does not manage to turn the situation around; Wayne will be held accountable ultimately.

6. Address morale issue amongst existing employees. It could be that employees are being overworked and are over tired and therefore not as productive as they should be.

7. Consider changing the staff shifts so that they are short enough for employees to be productive during the time they are at work.

8. Address balance of long-time employees -- the high level of long time employees is what is pushing the wages away from expectation; where possible replace long time employees with newer employees on lower wages.

9. Hourly paid employees on the high end must work shorter hours than the newer employees brought in.

10. No overtime for the long time employees. The rule must be stipulated and adhered to.

11. Determine whether overtime was justified to an extent. Restructure the division so that focus can change from overtime usage to sales strategy. Being more competitive whilst still representing quality products and timeliness of delivery would still benefit sales.

12. Introduce a balanced scorecard system for performance evaluation. This serves as a motivator for focus on performance.

13. Streamline product warehousing process to reduce amount of time spent storing or picking goods i.e. reduce number of lines for picking and dropping.

14. Set % gross margin target in order to maintain or improve it. It has been decreasing year on year therefore directly affecting profitability indicating that this needs to be monitored regularly.

15. Consider procuring or manufacturing options within Canada to minimize costs of import.

16. Reduce the number of lines being generated in order to reduce the number of trips and therefore the amount of work done. Make employees take a trip per batch of orders. Also increase the carrying capacity per batch picked or dropped.

In summary, the Board are correct in being concerned as there are labour variances (both in price and in quantity) which are contributing to higher wages than expected, misallocation of workers as well as inefficient workers (due to low morale).

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