Question

Johnson Electrical produces industrial ventilation fans. The company plans to manufacture 87,000 fans evenly over the next quarter at the following costs: direct material, $1,914,000; direct labor, $435,000; variable production overhead, $639,450; and fixed production overhead, $966,000. The $966,000 amount includes $84,000 of straight-line depreciation and $126,000 of supervisory salaries.

Shortly after the conclusion of the quarter’s first month, Johnson reported the following costs:

Direct material	$	619,700
Direct labor		134,400
Variable production overhead		217,000
Depreciation		28,000
Supervisory salaries		44,900
Other fixed production overhead		250,000
Total	$	1,294,000

Dave Kellerman and his crews turned out 26,000 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:
3. 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).
4. 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).

Answer 1

Answer 3.

Particulars	Static Budget	Actual Budget
	29000 units	26000 units	Variances
Direct material used	638000	619,700	18300	favorable
Direct Labour	145000	134,400	10600	favorable
Variable Production Overheads	213150	217,000	3850	Unfavorable
Depriciation	28000	28,000	0	none
Supervisory Salaries	42000	44,900	2900	Unfavorable
Other fixed Production Overheads	252000	250,000	2000	favorable
Total	1318150	1,294,000	24150	favorable

Answer 4

Particulars	Flexible Budget	Actual Budget
	26000 units	26000 units	Variances
Direct material used	572000	619,700	47700	Unfavorable
Direct Labour	130000	134,400	4400	Unfavorable
Variable Production Overheads	191100	217,000	25900	Unfavorable
Depriciation	28000	28,000	0	none
Supervisory Salaries	42000	44,900	2900	Unfavorable
Other fixed Production Overheads	252000	250,000	2000	favorable
Total	1215100	1,294,000	78900	favorable