Question

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: Direct material Direct labor Variable production overhead Depreciation Supervisory salaries Other fixed production overhead Total $ 518,750 159, 800 180,000 29,000 41, 900 241,000 $1,170, 450 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: 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?

Answer 1

x Johnson slectical Producer (2 which of the two budgets would be more useful Flexible Budget would be more useful. Because flexible budget incorpoaate several different activity levels. Stai HC Bud 9 et 25000 unit Direct marescial used $ 600,000 Direet labor 175000 variable manuf OH 1 +62 SO Depreciation 29000 supervisory saladies 39000 othes fixea monufoH 245000 10 TO $112,64 250 Actual 21000 unit variance 518 750 81250 F 159800 15200 F 180,000 3750 o 29000 41900 12900 u 241000 4000 F 11 10,450 93800 FI StatC Budget direct material & 1800,000 & 75oooo= 8 24 per unit DM = 25000X 34 = $ 600,000 3) Daech 19000 $ 525000 D.L = 25000X 7 75000 - 57 per unit - 17500D 75000 7.05 Pes unit 3) variable manuf.OH = 528750 variable manufoH 25000 K 7.05 = 176250

4 Depreciation 87000 : 3 months 29000 per month 5 supervisory Salaries = 1; 170000 - 3 month$39000 PM 6 other fixed OH = - (9 39000 - 87000 - 1,17000 - 3 months 245000 per month flexible Prepare a petormance at Port that compares & Acral cost Flexible Budget Actucy 21000 units 21000 units 504000 518 750 147000 159800 148050 180,000 29000 29000 39000 41900 I 2 45000 241000 $ 11, 12050 & 11,70 450 variance SS14750 128000 319500 u 11 Disect material Used 21 Direct labor 3) Nariable manuf OH 4 Depreciation 5) Supervison salario s) other fixed manufoH TOTC 2900 v 4000 F 58400 U DOM - $24 X 2 DL 7 x 3 variable. OH - 7.05 X cas per unit calculaterd 21000 = 21000 - 21000 = in deq.(3)] 504000 147000 198050 >>) (4), (5) & (6) CW pemain same as in 209.03)

- ] (a) A Performance is preferred deport based on flexible budgeting because it compares budgeted and actual pertomance at the same volume level (b7 Kellerman's assessment seg godling the favorable overall performance for the period is correct. above statment is false