PORTER CORPORATION Performance Report for the Month of June, 2015 Total Actual Costs Total Budgeted Costs Variances Direct material Direct labor.. Variable overhead. Fixed overhead. $216,630 119,340 63,000 184,000 $237,600 132,000 66,000 184,000 $20,970 F 12,660 F 3,000 F $582,970 $619,600 $36,630 F In his presentation at Porter's month-end management meeting. Harlow indicated that things were going "fantastically." "The figures indicate," he said, "that the firm is beating its budget in all cost categories." This good news made everyone at the meeting happy and furthered Harlow's acceptance as a member of the management team. After the management meeting. Susan Jones, Porter's general manager, asked you, as an inde- pendent consultant, to review Harlow's report. Jones' concern stemmed from the fact that Porter has never operated as favorably as Harlow's report seems to imply, and she cannot explain the apparent significant improvement. While reviewing Harlow's report, you are provided the following cost and operating data for June: Porter has a monthly normal capacity of 11,000 direct labor hours or 8,800 units of product. Standard costs per unit for its only product are direct material, 3 pounds at $9 per pound; direct labor, 1.25 hours at $12 per hour, and variable overhead rate per direct labor hour of $6. During June, Porter produced 8,000 units of product, using 24,900 pounds of material costing $8.70 each, 10,200 direct labor hours at an average rate of $11.70 ecach, and incurred variable overhead costs of $63,000 and fixed overhead costs of S184,000. After reviewing Porter's June cost data, you tell Harlow that his cost report contains a classic budgeting error, and you explain how he can remedy it. In response to your suggestion, Harlow revises his report as follows: Total Actual Total Budgeted Costs Costs Variances $216,630 $216,000 120.000 60,000 184,000 $580,000 $ 630 U 660 F 3,000 U Direct material Direct labor.. Variable overhead. Fixed overhead. 119,340 63,000 184,000 $582,970 $2.970 U Harlow's revised report is accompanied by remarks expressing regret at the oversight in the original report. Required In your role as consultant. Verify that Harlow's actual cost figures are correct. b. Identify and explain the classic budgeting error that Harlow apparently incorporated into his original cost report. Explain why Harlow's revised figures could be considered deficient. a. C. d. Further analyze Harlow's revised variances, isolating underlying potential causal factors How do your analyses indicate bases for concern to management?