1. Carpenter Company uses standard costing. The company has a manufacturing plant in Georgia. Standard labour-hours per unit are 0.50and the variable overhead rate for the Georgia plant is $3.50 per direct labour-hour. Fixed overhead for the Georgia plant is budgeted at $1,800,000 for the year. Firm management has always used variance analysis as a performance measure for the plant. Tom Saban has just been hired as a new controller for Carpenter Company. Tom is good friends with the Georgia plant manager and wants him to get a favourable review . Tom decides to underestimate production, and budgets annual output of 1,200,000 units. His explanation for this is that the economy is slowing and sales are likely to decrease . At the end of the year, the plant reported the following actual results: output of 1,500,000 using 760.000 labour- hours in total, at a cost of $2,700,000 in variable overhead and $ 1,850,000 in fixed overhead .

Questions:

1. Did Tom Saban's attempt to make his friend the plant manager look better work ?

2. Why or why not

3. What do you think of Tom Saban s behaviour overall