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The Richetti Battery Company produces a wide variety of batteries for home, automobile and marine use. One example of its many products is the Road Guardian automobile battery. The standard cost for this battery is as follows: Standard Cort. Road Guardian Material 54 Labor 3 Overhead 11 Total $18 At the start of the current year. 2021the company estimated that it would incur 548,400.000 of overhead costs and 56.050.000 of direct labor costs. Thus, 58 of overhead is applied at standard for each dollar of direct labor. Overhead is essentially completely und which reflects the high level of investment in automated manufacturing During 2021, the company experienced a labor strike that severely limited production, and standard labor cost was only $5,163,000 At a recent meeting in early January 2022.C.W. Rogers, the president of Richetti asked the company controller, Walter Cox. to estimate the effect of the strike on company proht. The following morning. Walter sent the president a memo Date: January 7, 2022 To: CW From: Walter Subject: Effect of strike on company pront As you know, profit in 2021 was greatly affected by a strike, which reduced productive capacity. The way to measure the impact of the reduced capacity is to examine the overhead volume variance. At the start of the year, we budgeted overhead to be 548,400.000 Actual overhead was $46,574.000 so we had a favorable overhead budget variance of $1,826,000. However, we applied only 541464,000 of overhead to inventory (58 overhead rate $5.183.000 standard labori. Thus, we had an unfavorable overhead volume variance of $6,936.000 $46.574.000 $48,400,000 $41.464.000 158 $5.183.0001 $1.826,000 Favorable 56.936.000 Unfavorable *Note that budgeted overhead does not need to be adjusted for actual production since overhead costs are for practical purposes fwed. Thus, overhead in a static budget and in a flexible budget are equal In my opinion the $6,936,000 unfavorable volume variance tells the story of our poor profit performance. If we had not had the strike production would have been at a higher level (a level requiring $6,050,000 of standard labor cost, and this variance would have been avoided CW. I realize that you are not an accountant.so please call me if you have any questions about my analysis (1) Suppose the stre limited production of the Road Guardian battery-a battery for which there is excess demand without the strike 699.000 more of these batteries could have been produced and sold (5867,000 of direct labor not available 53 of labor per battery. The selling price of the battery is $41. Taking this into account. calculate the effect of the strike on company sroht Effecten pront $

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