PR $11-39($Algo$)$ Budgets and Performance Evaluation $($LO $11-1,11-6)$

Johnson Electrical produces industrial ventilation fans. The company plans to manufacture $75,000$ fans evenly over the next quarter at

the following costs: direct material, $$1,800,000$; direct labor, $$525,000$; variable production overhead, $$528,750$; and fixed production

overhead, $$939,000.$ The $$939,000$ amount includes $$87,000$ of straight$-$line depreciation and $$117,000$ of supervisory salaries.

Shortly after the conclusion of the quarter's first month, Johnson reported the following costs:

Dave Kellerman and his crews turned out $21,000$ 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:

Explain the difference between a static budget and a flexible budget.

Which of the two budgets would be more useful when planning the company's cash needs over a range of activity?

Prepare a performance report that compares static budget and actual costs for the period just ended $($i$.$e$.,$ the report that Kellerman

likely used when assessing his performance$).$

Prepare a performance report that compares flexible budget and actual costs for the period just ended $($i$.$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? Req $1$

Req $2$

Req $3$

Req $4$

Prepare a performance report that compares static budget and actual costs for the period just ended $($i$.$e$.,$ the report that Kellerman likely used when assessing his performance$).$

Note: Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter $"0"$ for no effect $($i$.$e$.,$ zero variance$).$ Do not round intermediate calculations.

Show less $$

$\backslash$table$[[,$Static Budget:,Variance,$],[,,,],[,,,],[,,,],[,,,],[,,,],[$Total$,,,]]$ Complete this question by entering your answers in the tabs below.

Req $3$

Req $4$

Req $5$ A

Prepare a performance report that compares flexible budget and actual costs for the period just ended $($i$.$e$.,$ the report that the general manager likely used when assessing Kellerman's performance$).$

Note: Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter $"0"$ for no effect $($i$.$e$.,$ zero variance$).$ Do not round intermediate calculations.

Show less $1$

$\backslash$table$[[,$Flexible Budget:,Variance$],[,,$P$],[,,],[,,7],[,,\backslash$sqrt$7],[,,],[,,],[$Total$,$$$,]]$