Shipley Company has had a comprehensive budgeting system in operation for several years. Feelings vary among the managers as to the value and benefit of the system. The line supervisors are very happy with the reports being prepared on their performance, but upper management often expresses dissatisfaction over the reports being prepared on various phases of the company€™s operations. A typical manufacturing overhead performance report for a recent period is shown below:

After receiving a copy of this performance report, the supervisor of the Milling Department stated, €œNo one can complain about my department; our variances have been favorable for over a year now.
We€™ve saved the company thousands of dollars by our excellent cost control.€ The budget data above are for the original planned level of activity for the quarter.

Required:
1. The production superintendent is uneasy about the performance reports being prepared and would like you to evaluate their usefulness to the company.
2. What changes, if any, should be made in the overhead performance report to give better insight into how well the supervisor is controlling costs?
3. Prepare a new overhead performance report for the quarter, incorporating any changes you suggested in (2) above. Include both the variable and the fixed costs in yourreport.

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Shipley Company Overhead Performance Report-Milling Department For the Quarter Ended June 30 Actual Budget Variance Machine-hours. Variable overhead: Indirect labor 25,000 30,000 $ 20,000 $22,500 $2,500 F 5,400 600 F 27,000 30,000 3,000 F 14,000 15,000 1,000 F Total variable overhead cost.66,400 73,500 7,100 F Supplies Utilities Rework 6,000 Fixed overhead 61,900 60,000 1.900 U 90,000 90,000 0 Total fixed overhead cost Total overhead cost. 151,900 150,000 1,900 U $218,300 $223,500 $5,200 F