Question

30,000 XCELL union member employees that were part of its wireline business went on strike. The union members were upset about XCELL jobs being transferred overseas and overall cost cutting measures being implemented while the company was posting significant profits.

Since XCELL provides much needed home and business telephone service, the company had to bring in a temporary workforce to fill the roles of the striking workers. Given the magnitude of the temporary workforce, you can imagine the labor costs involved in such an exercise for XCELL. Assuming the striking workers were not entitled to pay when they weren't working, how do you expect that the strike will impact the company's wage expense? What standard cost variances might be impacted by this event?

Answer 1

The strike would definitely have an adverse impact on the company.The company would incur a huge amount of additional expense in the form of employee wages.

A)

a.Eventhough the existing employees are not payed during the strike,in order to settle the strike as a part of negotiation to end it ,the company will have to pay atleast a part of it.(in some cases, the entire amount)

b.During the strike,they had to bring temporary workforce for which wages.They had to be payed on hourly/day basis.Since there is sudden demand,they demand more wages when compared to normal stuation.So high expense

c.The efficiency of the temporary workforce would definitely be less than the regular worforce.Given the company is in to home and business telephone service it cannot relax.So in order to service their clients,they need to employ them overtime to match the requirements/needs of their functions/client requests.So they need to pay huge amount as overtime duty to the employees.

d.The administration charges will also increase due to the legal expenses during the strike ; documentation,basic facilities for temporary employees,etc

e.The strike will end only if negotiations with existing employees are successful.Negotiations include hikes,enhanced benefits etc., which are an additional labor cost to the company.

B) Due to this strike,cost variances can iccur in the form administration expenses and employees wage expenses (which are operating expenses) , efficiency loss (example (say) : new customer aquisition would be impacted due to which the revenue will get impacted.

So we can say the company's revenue will reduce,operating expenses will increase,brand value of the company(goodwill which is an intangible asset) may reduce (if the strike continues longer).

Hope this answer helps!!! If not,please feel free to comment ,so that I can try providing you with an alternative solution.