Johnson Electrical produces industrial ventilation fans. The company plans to manufacture 81,000 fans evenly over the next quarter at the following costs: direct material, $1,701,000; direct labor, $567,000; variable production overhead, $579,150; and fixed production overhead, $978,000. The $978,000 amount includes $72,000 of straight-line depreciation and $138,000 of supervisory salaries. Shortly after the conclusion of the quarter’s first month, Johnson reported the following costs:
Direct material $ 556,100
Direct labor 179,600
Variable production overhead 199,000
Depreciation 24,000
Supervisory salaries 48,900
Other fixed production overhead 251,000
Total $ 1,258,600
Dave Kellerman and his crews turned out 24,000 fans during the month—a remarkable feat given that the firm’s manufacturing plant was closed for several days because of storm damage and flooding. Kellerman was especially pleased with the fact that overall financial performance for the period was favorable when compared with the budget. His pleasure, however, was very short-lived, as Johnson’s general manager issued a stern warning that performance must improve, and improve quickly, if Kellerman had any hopes of keeping his job.
Required:
Which of the two budgets would be more useful when planning the company’s cash needs over a range of activity?
Prepare a performance report that compares static budget and actual costs for the period just ended (i. e., the report that Kellerman likely used when assessing his performance).
Prepare a performance report that compares flexible budget and actual costs for the period just ended (i. e., the report that the general manager likely used when assessing Kellerman’s performance).
5-a. Which of the following two reports is preferred?
5-b. Which of the following statements is false?
Complete this question by entering your answers in the tabs below.
Required 2
Required 3
Required 4
Required 5A
Required 5B
Which of the two budgets would be more useful when planning the company’s cash needs over a range of activity?
Complete this question by entering your answers in the tabs below.
would be more useful.
Prepare a performance report that compares static budget and actual costs for the period just ended (i. e., the report that Kellerman likely used when assessing his performance). (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i. e., zero variance). Do not round intermediate calculations.)
Static Budget: Actual:
27,000 Units 24,000 Units Variance
Total $0 $0
Prepare a performance report that compares flexible budget and actual costs for the period just ended (i. e., the report that the general manager likely used when assessing Kellerman’s performance). (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i. e., zero variance). Do not round intermediate calculations.)
Flexible Budget: Actual:
24,000 Units 24,000 Units Variance
Which of the following two reports is preferred?
A performance report based on
Which of the following statements is false?
The general manager's warning is appropriate because of the sizable variances that have arisen. radio button unchecked1 of 3
With the static budget, performance appears favorable. radio button unchecked2 of 3
Kellerman's assessment regarding the favorable overall performance for the period is correct.