Paul Hammond, president of Hammond Door Products Company, is evaluating the performance of Jason Burke, the plant manager, for the last fiscal year. Mr. Hammond is concerned that production costs exceeded budget by $50,000. He has available the 2018 static budget for the production plant, as well as the actual results, both of which follow:
Static Budget Actual Results
Production in units..................... 8,000 Doors....................... 8,400 Doors
Direct materials........................... $ 500,000.......................... $ 522,500
Direct labor.................................. 150,000............................ 159,250
Variable manufacturing overhead........ 200,000............................ 212,000
Total variable costs......................... 850,000............................ 893,750
Fixed manufacturing overhead............ 400,000........................... 406,250
Total manufacturing cost............... $1,250,000....................... $1,300,000
Required
a. Convert the static budget into a flexible budget.
b. Use the flexible budget to evaluate Mr. Burke's performance.
c. Explain why Mr. Burke's performance evaluation doesn't include sales revenue and net income.