Timothy Hawkins, superintendent of Kal-Tubing Company’s Machining Department, is very happy with his performance report for the past month. The report follows:

When he received a copy of this report, Wayne Lockhart, the production manager, commented, “I’ve been getting these reports for months now, and I still can’t see how they help me assess efficiency and cost control in that department. I agree that the budget for the month was 26,250 machine-hours, but that represents 8,750 units of product, since it should take three hours to produce one unit. The department produced only 5,250 units during the month, and took 22,500 machine-hours to do it. Why do all the variances turn up favourable?”
Required:
1. In answer to Lockhart’s question, why are all the variances favourable? Is the performance report useful? Explain.
2. Prepare a new overhead performance report that will help Lockhart assess efficiency and cost control in the Machining Department. ( Hint : Exhibit 10–13 may be helpful in structuring your report.)