Bugis Bags uses an annual flexible budget based on standard direct machine hours for the following factory over-head items

Fixed Cost Variable Cost per direct machine hour

Supplies $16,000 $0.30

Electricity 19,600 0.20

Indirect Labor 24,400 1.10

During the year, 15000 direct machine hours were recorded for the production achieved. The following actual costs were incurred:

Variable Costs:

Supplies $4800

Electricity 2900

Indirect Labor 17200

Fixed Costs:

Supplies $16500

Electricity 18800

Indirect Labor 24400

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 flexible budget for the three cost items using 12000, 15000 and 18000 direct machine hours.

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