Master Audio Inc. is a small manufacturer of electronic musical instruments. The plant manager received the following variable factory overhead report for the period:

The plant manager is not pleased with the \(\$ 8,202\) unfavorable variable factory overhead controllable variance and has come to discuss the matter with the controller. The following discussion occurred:
Plant Manager: I just received this factory report for the latest month of operation. I'm not very pleased with these figures. Before these numbers go to headquarters, you and I will need to reach an understanding.
Controller: Go ahead, what's the problem?
Plant Manager: What's the problem? Well, everything. Look at the variance. It's too large. If I understand the accounting approach being used here, you are assuming that my

costs are variable to the units produced. Thus, as the production volume declines, so should these costs. Well, I don't believe that these costs are variable at all. I think they are fixed costs. As a result, when we operate below capacity, the costs really don't go down at all. I'm being penalized for costs I have no control over at all. I need this report to be redone to reflect this fact. If anything, the difference between actual and budget is essentially a volume variance. Listen, I know that you're a team player. You really need to reconsider your assumptions on this one.
If you were in the controller's position, how would you respond to the plant manager?

Transcribed Image Text:

Supplies Power and light Indirect factory wages Total Actual Budgeted Variable Factory Overhead at Actual Production Controllable Variance $28,000 $26,520 $1,480 U 35,000 33,990 1,010 U 26,112 20,400 5,712 U $89,112 $80,910 $8,202 U Actual units produced: 10,200 (85% of practical capacity)