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Variance interpretation Harmony Industries Inc. is a small manufacturer of electronic musical instruments. The plant manager received the following variable factory overhead report for the period: The plant manager is not pleased with the $29,800 unfavorable variable factory overhead controllable variance and has come to discuss the matter with the controller. The following discussion occurred: Plant Malinger: I just received this factory report for the latest month of operation. I'm not pleased with these figures. Before these numbers go to headquarters, you and 1 will need to reach an understanding. Controller: Go ahead, what's the problem? Plant Manager: What's the problem? Well, everything, took at the variance. It's too large. If I understand the accounting approach being used here, you are assuming that my costs are variable to the units produced. Thus, as the production volume declines, so should these costs. Well. I don't bdleve that these costs are variable at all. I think they are fixed costs. As a result, when we operate below capacity, the costs really don'l go down at all. I'm being penalized for costs I have no control over at all. I need this report to be redone to reflect this fact. If anything, the difference between actual and budget is essentially a volume variance. Listen. I know that you're a learn player. You really need to reconsider your assumptions on this one. If you were in the controller's position, how would you respond to the plant manager?

BuyFind

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
Publisher: Cengage Learning
ISBN: 9781305961883
BuyFind

Survey of Accounting (Accounting I)

8th Edition
Carl Warren
Publisher: Cengage Learning
ISBN: 9781305961883

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Chapter
Section
Chapter 13, Problem 13.7C
Textbook Problem

Variance interpretation
Harmony Industries Inc. is a small manufacturer of electronic musical instruments. The plant manager received the following variable factory overhead report for the period:

Chapter 13, Problem 13.7C, Variance interpretation Harmony Industries Inc. is a small manufacturer of electronic musical

The plant manager is not pleased with the $29,800 unfavorable variable factory overhead controllable variance and has come to discuss the matter with the controller. The following discussion occurred:

Plant Malinger: I just received this factory report for the latest month of operation. I'm not pleased with these figures. Before these numbers go to headquarters, you and 1 will need to reach an understanding.
Controller: Go ahead, what's the problem?
Plant Manager: What's the problem? Well, everything, took at the variance. It's too large. If I understand the accounting approach being used here, you are assuming that my costs are variable to the units produced. Thus, as the production volume declines, so should these costs. Well. I don't bdleve that these costs are variable at all. I think they are fixed costs. As a result, when we operate below capacity, the costs really don'l go down at all. I'm being penalized for costs I have no control over at all. I need this report to be redone to reflect this fact. If anything, the difference between actual and budget is essentially a volume variance. Listen. I know that you're a learn player. You really need to reconsider your assumptions on this one.
If you were in the controller's position, how would you respond to the plant manager?

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Chapter 13 Solutions

Survey of Accounting (Accounting I)
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