Thirsty Ear Inc. is a small manufacturer of electronic musical instruments. The plant manager received the following

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Thirsty Ear Inc. is a small manufacturer of electronic musical instruments. The plant manager received the following variable factory overhead report for the period:

Thirsty Ear Inc. is a small manufacturer of electronic musical

The plant manager is not pleased with the $8,202 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 operation. I€™m not very pleased with these figures. Before these numbers go to headquarters, you and I will 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 that 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 at all. I€™m being penalized for costs I have no control over at all. 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.
If you were in the controller€™s position, how would you respond to the plantmanager?

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Accounting

ISBN: 978-0324188004

21st Edition

Authors: Carl s. warren, James m. reeve, Philip e. fess

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