Exercise 9-5A Evaluating a cost center including flexible budgeting concepts Muskrat Medical Equipment Company makes a blood pressure measuring kit. Jason McCoy is the production manager. The production department’s static budget and actual results for 2019 follow:
Static Budget Actual Results
Production in units……………………………………… 60,000 kits……………64,000 kits
Direct materials………………………………………….. $ 525,000……………. $ 655,000
Direct labor………………………………………………… 450,000……………… 464,000
Variable manufacturing overhead………………………….. 120,000………………135,000
Total variable costs……………………………………….. 1,095,000…………… 1,254,000
Fixed manufacturing overhead…………………………….. 525,000……………… 512,500
Total manufacturing cost……………………………….. $1,620,000……………. $1,766,500
Required
a. Convert the static budget into a flexible budget.
b. Use the flexible budget to evaluate Mr. McCoy’s performance.
c. Explain why Mr. McCoy’s performance evaluation does not include sales revenue and net income.
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