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

Johnson Electrical produces industrial ventilation fans. The company plans to manufacture $69,000$ fans evenly over the next quarter at the following costs: direct material, $$1,863,000$; direct labor, $$345,000$; variable production overhead, $$465,750$; and fixed production overhead, $$903,000.$ The $$903,000$ amount includes $$78,000$ of straight$-$line depreciation and $$102,000$ of supervisory salaries.

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

Direct material $ $559,450$

Direct labor $101,600$

Variable production overhead $160,000$

Depreciation $26,000$

Supervisory salaries $36,700$

Other fixed production overhead $239,000$

Total $ $1,122,750$

Dave Kellerman and his crews turned out $19,000$ 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:

$2.$ 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 $($i$.$e$.,$ 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 $($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?

$2$

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

$\_\_\_\_\_\_\_\_\_\_($ Flexible budget or static budget$)$ would be more useful

$3$

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$).($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.$)$

static budget actual

$23,000$ units $19,000$ units Variances

$($F$,$U$,$ None$)$

$($F$,$U$,$ None$)$

$($F$,$U$,$ None$)$

$($F$,$U$,$ None$)$

$($F$,$U$,$ None$)$

$($F$,$U$,$ None$)$

$($F$,$U$,$ None$)$

$4$

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$).($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.$)$

Flexible budget actual

$19,000$ units $19,000$ units Variances

$($F$,$U$,$ None$)$

$($F$,$U$,$ None$)$

$($F$,$U$,$ None$)$

$($F$,$U$,$ None$)$

$($F$,$U$,$ None$)$

$($F$,$U$,$ None$)$

$($F$,$U$,$ None$)$

$5$A

Which of the following two reports is preferred?

A performance report based on $\_\_\_\_\_\_\_\_\_\_\_\_\_($Flexible budgeting; Static budgeting$)$

$5$B

Which of the following statements is false?

a$)$ The general manager's warning is appropriate because of the sizable variances that have arisen.

b$)$ With the static budget, performance appears Favorable.

c$)$ Kellerman's assessment regarding the favorable overall performance for the period is correct.