Perjaya Plastics Ltd has prepared the following fixed budget performance report for the production department’s financial results during the year ended 30 June 2020.

Required

(a) Should the production department manager be rewarded for the significantly large favourable variance reported for the year? Explain.

(b) Prepare a flexible budget performance report for the company’s results. Comment on the manager’s performance.

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Units of production: Manufacturing costs: Direct materials Direct labour Factory overhead: Variable costs: Indirect labour PERJAYA PLASTICS LTD Fixed Budget Performance Report for the year ended 30 June 2020 Budget 144000 Actual 126000 $ 648000 504000 $ 577200 430560 Variance 18000 U $ 70800 F 73440 F 36000 32 760 3240 F Supplies 57 600 Repairs 43 200 54600 28080 3000 F 15120 F Total variable overhead 136800 115440 21 360 F Fixed costs: Depreciation Insurance 127200 127440 240 U Rent 2400 12000 Salaries Total fixed overhead 16800 2920 12000 17280 520 U 480 U 158 400 159 640 1240 U Total factory overhead 295 200 275080 20120 F Total manufacturing costs $1447 200 $1282840 $164360 F U indicates an unfavourable variance. F indicates a favourable variance.