Problem 1: Compare the static budget variances as provided in Exhibit 3 and the flexible budget variances you computed in Questions 5 to 8. Assume that the production manager is primarily responsible for overseeing the efficiency of the production, and that the production level (180,000 units vs. 200,000 units) is not controllable by the production manager. Given these assumptions, is the static budget variance or the flexible budget variance a better, or more objective, measure of the production manager's performance? In other words, which budget would reflect the manager's actual performance? Why?
Problem 2: What information should Wentao Chen, the manager of Danshui Plant No 2., gather to further understand the results of the variance analysis? What are some strategies that Wentao Chen should consider in trying to solve the problems with the Apple iPhone 4 contract in the next nine months?