Johnson Electrical produces industrial ventilation fans. The company plans to manufacture 87,000 fans evenly over the next quarter atthe following costs direct material, $1,740,000, direct labor, $522,000, variable production overhead, $639,450, and fixed productionoverhead. $960,000. The $960,000 amount includes $84,000 of straight-line depreciation and $105,000 of supervisory salariesShortly after the conclusion of the quarter's first month, Johnson reported the following costs:Direct materialDirect labor$ 554,600159,300Variable production overheadDepreciation220,00028,000Supervisory salaries37,600Other fixed production overheadTotal252,000$1,251,500Dave Kellerman and his crews turned out 25,000 fans during the month a remarkable feat given that the firm's manufacturing plantwas closed for several days because of storm damage and flooding Kellerman was especially pleased with the fact that overallfinancial performance for the period was favorable when compared with the budget. His pleasure, however, was very short-lived, asJohnson's general manager issued a stern warning that performance must improve, and improve quickly, if Kellerman had any hopesof keeping his jobRequired:1. Explain the difference between a static budget and a flexible budget2. Which of the two budgets would be more useful when planning the company's cash needs over a range of activity?3. Prepare a performance report that compares static budget and actual costs for the period just ended (ie, the report that Kellermanlikely used when assessing his performance)4. Prepare a performance report that compares flexible budget and actual costs for the period just ended (ke, the report that thegeneral manager likely used when assessing Kellerman's performance).5-a. Which of the following two reports is preferred?5-b. Which of the following statements is false?

Static Budget & Flexible Budget: > Static budget is based on a fixed budgeted cost for a…

Required: 1. Explain the difference between a static budget and a flexible budget. 2. Which of the two budgets would be more useful when planning the company's cash needs over a range of activity? 3. Prepare a performance report that compares static budget and actual costs for the period just ended (ie, 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 (e, the report that the general manager likely used when assessing Kellerman's performance) 5-a. Which of the following two reports is preferred? 5-b. Which of the following statements is false?

Required: 1. Explain the difference between a static budget and a flexible budget. 2. Which of the two budgets would be more useful when planning the company's cash needs over a range of activity? 3. Prepare a performance report that compares static budget and actual costs for the period just ended (ie, 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 (e, the report that the general manager likely used when assessing Kellerman's performance) 5-a. Which of the following two reports is preferred? 5-b. Which of the following statements is false?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Management by Exception

A manager’s job is a very tough one. A manager needs to look at the various areas of work and as a manager he has to look after two or more important jobs or activities at the same time for the growth of the business. In order to do all these things in an effective manner, a manager must adopt or practice different management styles and tactics.

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, $1,740,000, direct labor, $522,000, variable production overhead, $639,450, and fixed production
overhead. $960,000. The $960,000 amount includes $84,000 of straight-line depreciation and $105,000 of supervisory salaries
Shortly after the conclusion of the quarter's first month, Johnson reported the following costs:
Direct material
Direct labor
$ 554,600
159,300
Variable production overhead
Depreciation
220,000
28,000
Supervisory salaries
37,600
Other fixed production overhead
Total
252,000
$1,251,500
Dave Kellerman and his crews turned out 25,000 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:
1. Explain the difference between a static budget and a flexible budget
2. Which of the two budgets would be more useful when planning the company's cash needs over a range of activity?
3. Prepare a performance report that compares static budget and actual costs for the period just ended (ie, 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 (ke, the report that the
general manager likely used when assessing Kellerman's performance).
5-a. Which of the following two reports is preferred?
5-b. Which of the following statements is false?

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