Hippolito Inc. manufactures industrial tools and has annual sales of approximately $3.5 million with no evidence of cyclical demand. R&D is very important to Hippolito because its market share expands only in response to product innovation.

The company controller has designed and implemented a new annual budget system divided into 12 equal segments for use for monthly performance evaluations. The vice president of operations was upset upon receiving the following responsibility report for the Machining Department for October 2010:

a. Identify the weaknesses in the responsibility report for the Machining Department.
b. Prepare a revised responsibility report for the Machining Department that reduces or eliminates the weaknesses indicated in part (a).
c. Deviations in excess of 5 percent of budget are considered material and worthy of investigation. Should any of the Machining Department's variances be investigated? Regardless of materiality, is there any area that the vice president of operations might wish to discuss with the manager of the Machining Department?

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MACHINING DEPARTMENT Responsibility Report For the Month Ended October 31, 2010 Budget Actual Variance Volume in units 3,000 3,185 185 F Variable manufacturing costs S 27,000 28,500 Direct material Direct labor Variable factory overhead 5 28,028 30,098 35,035 $93161 $1,028 U 1,598 U 1735 U 4361 U 3330055053 Total 5 88800 Fixed manufacturing costs Indirect labor Depreciation Property tax $ 3,300 1,500 300 240 930 3,334 1,500 300 240 1,027 34U 0 0 0 Other Total 56270 5 6409U 5 131U Corporate costs 2,400 3,600 $1328 U Research and development Seiling and administration S 3,728 $6000 702475U 5 7803 4,075 Total $1,803 U Total costs $101070 107 56,295 U