Overhead variances, ethics

Zeller Company uses standard costing. The company prepared its static budget for 2008 at 2,500,000 machine-hours for the year. Total budgeted overhead cost is $31,250,000. The variable overhead rate is $10 per machine-hour ($20 per unit). Actual results for 2008 follow:

1.         Compute for the fixed overhead:

a.         Budgeted amount

b.         Budgeted cost per machine-hour

c.         Actual cost

d.         Production-volume variance

2.         Compute the variable overhead spending variance and the variable overhead efficiency variance.

3.         Jack Remich, the controller, prepares the variance analysis. It is common knowledge in the company at he and Ronald Monroe, the production manager, are not on the best of terms. In a recent executive committee meeting, Monroe had complained about the lack of usefulness of the accounting reports he receives. To get back at him, Remich manipulated the actual fixed overhead amount by assigning a greater-than-normal share of allocated costs to the production area. And, he decided to depreciate of all the newly acquired production equipment using the double-declining-balance method rather than the straight-line method, contrary to company practice. As a result, there was a sizable unfavorable fixed overhead spending variance. He boasted to one of his confidants, “I am just returning the favor.” Discuss Remich’s actions and their ramifications.

Transcribed Image Text:

2,400,000 hours 1,245,000 units Machine-hours Output Variable overhead Fixed overhead spending variance $25,200,000 $1,500,000 U