Evaluating a cost center including flexible budgeting concepts
Darden Medical Equipment Company makes a blood pressure measuring kit. Dan Bushaw is the production manager. The production department’s static budget and actual results for 2009 follow.
|
Static Budget |
Actual Results |
|
|
20,000 kits |
21,000 kits |
|
|
Direct materials |
$154,000 |
$166,000 |
|
Direct labor |
136,000 |
139,800 |
|
Variable manufacturing overhead |
37,000 |
46,600 |
|
Total variable costs |
327,000 |
352,400 |
|
Fixed manufacturing overhead |
167,000 |
164,000 |
|
Total manufacturing cost |
$494,000 |
$516,400 |
Required
a. Convert the static budget into a flexible budget.
b. Use the flexible budget to evaluate Mr. Bushaw’s performance.
c. Explain why Mr. Bushaw’s performance evaluation does not include sales revenue and net income.