MBK Bags uses an annual flexible budget based on standard direct machine hours for the following factory overhead items:

	Fixed cost				Variable cost per standard direct machine hour
Supplies Electricity Indirect labour		$16 000 19 600 24 400				$0.30 0.20 1.10

During the year, 18 000 direct machine hours were recorded for the production achieved. The following actual costs were incurred:

Variable costs: Supplies Electricity Indirect labour Fixed costs: Supplies Electricity Indirect labour

$ $

5 100 3 700 19 800 16 500 18 800 24 400

Required

A. Why is a flexible budget performance report a better basis for assessing a manager’s performance than a fixed budget performance report?

B. Prepare a flexible budget for the three cost items using 12 000, 15 000 and 18 000 direct machine hours.

C. Prepare a flexible budget performance report for the three cost items, based on the actual results for the year.