Vanadium Audio Inc. is a small manufacturer of electronic musical instruments. The plant manager received the following variable factory overhead report for the past month of operations: Budgeted Variable Actual Factory Overhead at Actual Production Controllable Variance Supplies $ 42,000 $ 39,780 $ 2,220 U Power and light 52,500 50,900 1,600 U Indirect factory wages 39,100 30,600 8,500 U Total $133,600 $121,280 $12,320 U Actual units produced: 15,000 (90% of practical capacity) The plant manager is not pleased with the $12,320 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 operations. I'm not very pleased with these figures. Before these numbers go to headquarters, you and I 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 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. I'm being penalized for costs I have no control over. 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. Assume you are the controller. Write a memo responding to the plant manager