Flexible budget. Connor Company’s budgeted prices for direct materials, direct manufacturing labor, and direct marketing (distribution) labor per attaché case are $40, $8, and $12, respectively. The president is pleased with the following performance report:

Actual Costs

Static Budget

Variance

Direct materials

$364,000

$400,000

$36,000 F

Direct manufacturing labor

78,000

80,000

2,000 F

Direct marketing (distribution) labor

110,000

120,000

10,000 F

Actual output was 8,800 attaché cases. Assume all three direct cost items shown are variable costs.

Is the president’s pleasure justified? Prepare a revised performance report that uses a flexible budget and a static budget.