1. Static versus flexible budget

Static budgets present budgeted amounts based on fixed assumptions, whereas flexible budgets change base on activity level. A flexible budget is a static budget, restated at different leverls of activity.

Actual departmental expenses for the month of May for the Assembly department of Destin Enterprises are compared to a static budget in the Assembly Department Expenses report shown. A flexible budget, the Assembly Department Expenses Budget, is also presented for different levels of production.

Destin Enterprises Assembly Department Expenses for the Month of May

		Budget
	Actual	(1,700 units)
Variable cost:
Direct materials	$10,275	$8,500
Direct labor	133,575	127,500
Variable overhead	61,650	59,500
Total variable cost	$205,500	$195,500
Fixed cost	1,000	1,000
Total department costs	$206,500	$196,500

Destin Enterprises Assembly Department Expenses Budget For the Month of May

Units of production	1,100	1,700	2,100
Variable cost:
Direct materials	$5,500	$8,500	$10,500
Direct labor	82,500	127,500	157,500
Variable overhead	38,500	59,500	73,500
Total variable cost	$126,500	$195,500	$241,500
Fixed cost	1,000	1,000	1,000
Total department costs	$127,500	$196,500	$242,500

A. The Assembly Department Expenses report shows that the Assembly department spent $206,500, which is $10,000 over budget, in May. The Assembly department produced 1,870 units in May.

Is this good news or bad news? Please choice one from the following:

	Good news
	Bad news

B. Seclect a statement to support your answer. Please choice one from the following:

	Destin produced fewer units at a higher than budgeted cost.
	Destin produced fewer units, but the cost to produce those units was less than budget.
	Destin produced more units but at a higher than budgeted cost.
	Destin produced more units for less cost.