Tillery Company's Production V

Essay

Tillery Company's production V.P. has a problem. Because of the pattern he has detected in the direct and indirect labor variances, he has been investigating the situation. The investigation has turned up a misclassification of direct and indirect labor hours that appears to be deliberate. When going back and correctly reclassifying the hours, significant unfavorable labor efficiency variances have appeared. To get around this, some hours were called indirect labor which would make the labor efficiency variance have an unfavorable variance but at a lower figure. Further investigation showed that the department manager also was the timekeeper because the company could not afford a separate timekeeper.
Required: What actions might be taken to correct this problem?