Midwest Ventilation, Inc., produces industrial ventilation fans. The company plans to manufacture 75,000 fans evenly over the next quarter at the following costs: direct material, $1,800,000; direct labor, $525,000; variable production overhead, $573,750; and fixed production overhead, $921,000. The fixed-overhead amount includes $72,000 of straight-line depreciation and $105,000 of supervisory salaries.

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

Direct material	$	567,100
Direct labor		167,600
Variable production overhead		195,000
Depreciation		24,000
Supervisory salaries		38,900
Other fixed production overhead		241,000
Total	$	1,233,600

Dave Kellerman and his crews turned out 22,000 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 Midwests general manager issued a stern warning that performance must improve, and improve quickly, if Kellerman had any hopes of keeping his job.

Required:

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

3.

Prepare a performance report that compares budgeted and actual costs for the period just ended (i.e., the report that Kellerman likely used when assessing his performance). (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance).)

	Static Budget:	Actual:
	25,000 Units	22,000 Units	Variance
Total

4.

Prepare a performance report that compares budgeted and actual costs for the period just ended (i.e., the report that the general manager likely used when assessing Kellermans performance). (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance).)

	Flexible Budget:	Actual:
	22,000 Units	22,000 Units	Variance
Total

5-a.	Which of the following two reports is preferred?
	A performance report based on flexible budgeting. A performance report based on static budgeting.

5-b.	Which of the following statements is false?
	The general manager's warning is appropriate because of the sizable variances that have arisen. With the static budget, performance appears favorable. Kellerman's assessment regarding the favorable overall performance for the period is correct.