Evaluating a cost center including flexible budgeting concepts
Smiley Medical Equipment Company makes a blood pressure measuring kit. Elbert Jackson is the production manager. The production department’s static budget and actual results for 2012 follow.
| Static Budget | Actual Results |
| 30,000 kits | 32,000 kits |
Direct materials | $210,000 | $262,000 |
Direct labor | 180,000 | 185,600 |
Variable manufacturing overhead | 48,000 | 54,000 |
Total variable costs | 438,000 | 501,600 |
Fixed manufacturing overhead | 210,000 | 205,000 |
Total manufacturing cost | $648,000 | $706,600 |
Required
a. Convert the static budget into a flexible budget.
b. Use the flexible budget to evaluate Mr. Jackson’s performance.
c. Explain why Mr. Jackson’s performance evaluation does not include sales revenue and net income.
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