Purchasing Company budgeted $100,000 of factory overhead cost to manufacture 5,000 units in 2022. At the end of 2022, management asked production why only 4,000 units were produced and the factory sat idle, incurring heavy fixed costs and a high volume variance. Production responded that the sales team projected lower sales units and there was considerable extra inventory from previous periods, so it did not make sense to overproduce.

a. Did the plant manager do a good job in controlling factory overhead costs or does the explanation for the high-volume variance make sense?

b. In such a situation, how would you recommend dealing with the idle facilities? For example, should production still produce more units? Should production be outsourced because of the unpredictability of sales?