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Carpenter Company uses standard costing. The company has a
manufacturing plant in Georgia. Standard labour-hours per unit are
0.50, and the variable overhead rate for the Georgia plant is $3.50
per direct labour-hour. Fixed overhead for the Georgia plant is
budgeted at $1,800,000 for the year. Firm management has always
used variance analysis as a performance measure for the plant.
Tom Saban has just been hired as a new controller for Carpenter
Company. Tom is good friends with the Georgia plant manager and
wants him to get a favourable review. Tom decides to underestimate
production, and budgets annual output of 1,200,000 units. His
explanation for this is that the economy is slowing and sales are
likely to decrease.
At the end of the year, the plant reported the following actual
results: output of 1,500,000 using 760,000 labour-hours in total,
at a cost of $2,700,000 in variable overhead and $1,850,000 in
fixed overhead.
Briefly answer the following questions (and then respond to at
least two of your classmates):