Johnson Electrical produces industrial ventilation fans. The company plans to manufacture 72,000 fans evenly over the next quarter at the following costs: direct material, $1,656,000; direct labor, $432,000; variable production overhead, $493,200; and fixed production overhead, $987,000. The $987,000 amount includes $84,000 of straight-line depreciation and $123,000 of supervisory salaries.

Shortly after the conclusion of the quarters first month, Johnson reported the following costs:

Direct material	$ 489,300
Direct labor	127,900
Variable production overhead	170,000
Depreciation	28,000
Supervisory salaries	42,100
Other fixed production overhead	256,000
Total	$ 1,113,300

Dave Kellerman and his crews turned out 20,000 fans during the montha remarkable feat given that the firms manufacturing plant was closed for several days because of storm damage and flooding. Kellerman was especially pleased with the fact that overall financial performance for the period was favorable when compared with the budget. His pleasure, however, was very short-lived, as Johnsons general manager issued a stern warning that performance must improve, and improve quickly, if Kellerman had any hopes of keeping his job.

Required:

1. Explain the difference between a static budget and a flexible budget.

2. Which of the two budgets would be more useful when planning the companys cash needs over a range of activity?

3. Prepare a performance report that compares static budget and actual costs for the period just ended (i.e., the report that Kellerman likely used when assessing his performance).

4. Prepare a performance report that compares flexible budget and actual costs for the period just ended (i.e., the report that the general manager likely used when assessing Kellermans performance).

5-a. Which of the following two reports is preferred?

5-b. Which of the following statements is false?

Prepare a performance report that compares static budget and actual costs for the period just ended (i.e., the report that Kellerman likely used when assessing his performance). Note: Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Do not round intermediate calculations. Prepare a performance report that compares flexible budget and actual costs for the period just ended (i.e., the report that the general manager likely used when assessing Kellerman's performance). Note: Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance). Do not round intermediate calculations