$6$ Part Three Operational$-$Level Control

how overhead application rates are set. For example, she told members of the board that companies

can spread budgeted fixed overhead for the period over budgeted $($forecasted$)$ activity, normal capac$-$

ity, practical capacity, or even theoretical $($maximum$)$ capacity. All of this didn't resonate well with

members of the board, who basically saw the discussion as just another example of how accounting

can be used to manage income $($i$.$e$.,$ "cook the books"$).$ The chair of the finance committee of the

board asked Susanna to generate a concise report that would illustrate, in concrete terms, the issues

involved. In turn, you have been asked to prepare this report, which will be distributed to attendees

at the next meeting of the finance committee. These committee members are adept at using spread$-$

sheets and therefore have requested that your report be distributed to them electronically.

Based on your subsequent discussions with the controller, you have come up with the following

information that is pertinent to your task:

a$.$ Basis for applying factory overhead costs to units produced $=$ Standard machine hours.

b$.$ Budgeted fixed overhead total