Static versus Flexible Budgeting-Performance Reports (Service Firm)
Response to the following problem:
Flannery Muffler Shop has budgeted to repair 10,000 mufflers during 2009. Each repair job takes 1½ hours, and employees are paid $12 per hour. During 2009, Flannery actually repaired 9,425 mufflers, and the salary expense amounted to $179,000.
1. Assuming a static budget, use the information to prepare a performance report for Flannery Muffler Shop for 2009.
2. Assuming a flexible budget, use the information to prepare a performance report for Flannery Muffler Shop for 2009.
3. Interpretive Question: The manager of the muffler shop believes he deserves a bonus because the actual wage expense ($179,000) was less than budgeted. Do you agree? Explain.