The installed capacity of XYZ Ltd. is 50,000 units per month. Sales normally permit operations at 80 per cent of this capacity. At normal capacity, indirect manufacturing overheads total ₹3,60,000.

During the month of April of the current year, sales demand was above normal and 45,000 units were manufactured and sold. Indirect manufacturing costs of the order of ₹3,87,000 were recorded.

An argument has ensued between the plant superintendent and the production supervisor. The supervisor claims credit for reducing unit cost. The superintendent contends that waste and inefficiency have crept into the plant, as reflected in cost increases.
The chief executive of the company cannot follow the superintendent’s reasoning and has called you to settle the argument.
The analysis of the company’s costs shows that fixed indirect manufacturing costs are ₹2,00,000 per month. The company has the practice of recovering these costs from the normal capacity.
You are required to prepare a report for the chief executive of the company to help him in rewarding the right man/or assigning responsibility for poor performance.