Problem:
You are evaluating the performance of the laboratory department manager. The output of this department is the number of tests performed. A static budget was prepared at the beginning of the year. You are now examining that budget in relation to actual experience. The relevant data are included in the attachment. The department manager is pleased because the department has a favorable $50,000 cost variance.
Evaluate the effectiveness of the manager using the flexible budgetary variance model. Did the manager do a good job this year?
Actual Original Budget Variance Type
Tests 60,000 80,000 20,000 Unfavorable
Variable Costs $750,000 $800,000 $50,000 Favorable
Fixed Costs 300,000 300,000
Total Costs $1,050,000 $1,100,000 $50,000 Favorable