Scion Corp. manufactures earth- moving equipment. Department A303 produces a number of small metal parts for the equipment, including specialized screw products, rods, frame fittings, and some engine parts. Scion uses flexible budgeting. The budget for each line item is based on an estimate of the fixed costs and variable costs per unit of volume for that item. The volume measure chosen for each line item is the one with the greatest cause- and- effect relation to the item. For example, the volume measure for utilities is machine hours, whereas the volume measure for supervision is direct labor hours of hourly employees.

Required:
Discuss the advantages and disadvantages of the two alternative schemes (adjusting the budget versus adjusting theactual).

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Machiing Department A303 Operating Results for Last Year Favorable Actual Last Year Budget* Last Year Unfavorable) Variance Volume Measures Machine hours Direct labor hours Parts machined 238,654 146,400 33.565.268 265,000 152,000 35,759,000 Departmental Financial Performance Raw materials Direct labor, salaried Direct labor, hourly Supervision Maintenance Engineering Utilities Training Factory overhead $8,326,875 1546.729 1-465.623 451,597 315.864 279.780 69,539 85.750 188,500 $ 8.150,000 1,643.000 1.375,000 460,000 325,000 285,000 82.000 53,000 210,000 $(176,875) 96,271 (90.623) 8,403 9,136 5.220 12461 (32,750) 21,500 Total operating expenses $12,730,257 $12,583,000 S147,257)