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, €œI€™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.)

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KAL-TUBING COMPANY Overhead Performance Report-Machining Department Budget Actual Variance Machine-hours.... Variable manufacturing overhead: Indirect labour.. Utilities Supplies Maintenance.. Total variable manufacturing overhead.. Fixed manufacturing overhead: Maintenance.... 22,500 26,250 $ 59,100 $ 63,000 178,500 42,000 84000 $ 3,900 F 26,100 F 4,200 F 9,300 F 43,500 F 152,400 37,800 74,700 367,500 324000 $ 17,000 247,500 180,000 544,500 $868,500 $ 17,000 247,500 180,000 544,500 $912,000 Supervision.. Depreciation. Total fixed manufacturing overhead.. Total manufacturing overhead.. $43,500 F ..... ....