Lance Prating is the controller of the Colorado Springs manufacturing facility of Advance Macro, Incorporated. Among the many reports that must be fi led with corporate headquarters is the annual overhead performance report. The report covers the year which ends on December 31 and is due at corporate headquarters shortly after the beginning of the new year. Prating does not like putting work off to the last minute, so just before Christmas he put together a preliminary draft of the overhead performance report. Some adjustments would later be required for the few transactions that occur between Christmas and New Year€™s Day. A copy of the preliminary draft report, which Prating completed on December 21, follows:

Tab Kapp, the general manager at the Colorado Springs facility, asked to see a copy of the preliminary draft report at 4:45 P.M. on December 23. Prating carried a copy of the report to Kapp€™s office where the following discussion took place:
Kapp: Wow! Almost all of the variances on the report are unfavorable. The only thing that looks good at all are the favorable variances for supervisory salaries and for industrial engineering. How did we have an unfavorable variance for depreciation?
Prating: Do you remember that milling machine that broke down because the wrong lubricant was used by the machine operator?
Kapp: Only vaguely.
Prating: It turned out we couldn€™t fi x it. We had to scrap the machine and buy a new one.
Kapp: This report doesn€™t look good. I was raked over the coals last year when we had just a few unfavorable variances.
Prating: I€™m afraid the final report is going to look even worse.
Kapp: Oh?
Prating: The line item for industrial engineering on the report is for work we hired Sanchez Engineering to do for us on a contract basis. The original contract was for $160,000, but we asked them to do some additional work that was not in the contract. Under the terms of the contract, we have to reimburse Sanchez Engineering for the costs of the additional work. The $154,000 in actual costs that appear on the preliminary draft report reflects only their billings up through December 21. The last bill they had sent us was on November 28, and they completed the project just last week. Yesterday I got a call from Maria over at Sanchez and she said they would be sending us a final bill for the project before the end of the year. The total bill, including the reimbursements for the additional work, is going to be . . .
Kapp: I am not sure I want to hear this.
Prating: $176,000.
Kapp: Ouch!
Prating: The additional work we asked them to do added $16,000 to the cost of the project.
Kapp: No way can I turn in a performance report with an overall unfavorable variance. They€™ll kill me at corporate headquarters. Call up Maria at Sanchez and ask her not to send the bill until after the first of the year. We have to have that $6,000 favorable variance for industrial engineering on the performance report.

Required:
What should Lance Prating do?Explain.

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Colorado Springs Manufacturing Facility Overhead Performance Report December 21 Preliminary Draft Budgeted machine-hours Actual machine-hours 100,000 90,000 Flexible Cost Actual Budget (per 90,000 90,000 hour)Hours Formula Costs for Based on Spending or machine- Machine Machine Budget Hours Variance Overhead Costs Variable overhead costs Power..$0.03 2,840 2,700 $ 140 U Supplies. AbrasiveS 0.86 0.34 $1.23 79,060 77.400 ,660 U 30,600 1.980 U 32.580 Total variable overhead cost 114,480 110,700 3,780 U Fixed overhead costs: Depreciation Supervisory salaries. Insurance Industrial engineering Factory building lease 228,300 226,500 1,800 U 187,300 189,000 1.700 F 23,000 23,000 154,000 160,000 6,000 F 46,000 46,000 0 Total fixed overhead cost 638,600 644,500 5,900 F Total overhead cost ..A. $753,080 $755,200 $2,120 F