Berkshire Bear Co
Introduction
The case of the Berkshire Toy Company illustrates the "behind the scenes" causes of a net loss despite record sales. We approached this problem from each departmental perspective and, where appropriate, attempted to reconcile the cause-and-effect relationship between the Marketing, Purchasing and Production areas.
Production
Berkshire Toy Company faced a number of labor and manufacturing setbacks during FY98 that led to poor overall production. Of particular interest are the direct labor variances for the fiscal period. Berkshire had a net labor rate variance (LRV) of $76,329 (see Table 3) which can be attributed to the "last minute" hiring of several replacement employees at a rate higher than the budgeted average of $8.00 per hour. In fact, the overall average labor rate was $8.17 per hour. The net labor efficiency variance (LEV) was even more startling at $903,976 (see Table 4A). This difference in quantity of labor hours contributed heavily to Berkshire's 36%......
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