Question:
Flexible Budget
Connor Company's budgeted prices for direct materials, direct manufacturing labor, and direct marketing (distribution) labor per attaché case are $40, $8, $12, respectively. The president is pleased with the following performance report.
|
Actual Costs
|
Static Budget
|
Variance
|
|
Direct materials
|
364,000
|
400,000
|
36,000 F
|
|
Direct manufacturing labor
|
78,000
|
80,000
|
2,000 F
|
|
Direct marketing (distribution)labor
|
110,000
|
120,000
|
10,000 F
|
48,000 F
Actual output was 8,800 attache cases. Assume all three direct-cost items above are variable costs.
Is the president's pleasure justified? Prepare revised performance report that uses flexible budget and a static budget.