Auditors for the Internal Revenue Service (IRS) scrutinize income tax returns after they have been prescreened with the help of computer tests for normal ranges of deductions claimed by taxpayers. The IRS uses an expected cost of $7 per tax return, based on measurement studies that allow 20 minutes per return. Each agent has a workweek of 5 days of 8 hours per day.

Twentytwo auditors are employed at a salary of $830 each per week.The audit supervisor has the following data regarding performance for the most recent 4-week period, when 8,400 returns were processed:

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Data Table

Actual Cost Expected Cost for Difference or

of Auditors Processing Returns Variance

$73,040 ? ?

Requirements

1.	Compute the expected cost and the variance.
2.	The supervisor believes that audit work should be conducted more productively and that superfluous personnel should be transferred to field audits. If the foregoing data are representative, how many auditors should be transferred?
3.	List some possible reasons for the variance.
4.	Describe some alternative cost drivers for processing income tax returns.

Requirement 1. Compute the expected cost and the variance. (Label the variance as favorable (F) or unfavorable (U).)

Actual cost of	Expected cost for	Difference or
auditors	processing returns	variance
$73,040	$58,800	$14,240	U

Part 2

Requirement 2. The supervisor believes that audit work should be conducted more productively and that superfluous personnel should be transferred to field audits. If the foregoing data are representative, how many auditors should be transferred? (Round the auditors needed up to the next whole number, then determine how many auditors should be transferred.)

If the foregoing data are representative, [#?] auditors are needed and [#?] auditors should be transferred.