Midwest Ventilation, Inc., produces industrial ventilation fans. The company plans to manufacture 81,000 fans evenly over the next quarter at the following costs: direct material, $1,944,000; direct labor, $324,000; variable production overhead, $522,450; and fixed production overhead, $948,000. The fixed-overhead amount includes $78,000 of straight-line depreciation and $120,000 of supervisory salaries. Shortly after the conclusion of the quarter’s first month, Midwest reported the following costs:
Direct material $ 585,500
Direct labor 94,500
Variable production overhead 178,000
Depreciation 26,000
Supervisory salaries 40,800
Other fixed production overhead 245,000
Total $ 1,169,800
Dave Kellerman and his crews turned out 23,000 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 Midwest’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?
Flexible Budget or Static Budget????
3. Prepare a performance report that compares budgeted and actual costs for the period just ended