In 2016, only 806,840 Deliman meals were produced and sold to the retirement homes. Smith suspects that retirement home controllers had systematically inflated their 2016 meal estimates.
Required
1. Recall that Deliman uses the master-budget capacity utilization to allocate fixed costs and to price meals. What was the effect of production-volume variance on Deliman's operating income in 2016?
2. Why might retirement home controllers deliberately overestimate their future meal counts?
3. What other evidence should Deli One's controller seek to investigate Smith's concerns?
4. Suggest two specific steps that Deli One's controller might take to reduce retirement home controllers' incentives to inflate their estimated meal counts. (continuation of 9-32).