Zachary Medical Equipment Company makes a blood pressure measuring kit. Jason McCoy is the production manager. The production department's static budget and actual results for 2019 follow: Static Budget Actual Results Production in units 23,000 kits 24,900 kits Direct materials $ 165,600 $ 217,180 Direct labor 142,600 147,280 Variable manufacturing overhead 34,500 39,850 Total variable costs 342,700 404,310 Fixed manufacturing overhead 217,000 212,900 Total manufacturing cost $ 559,700 $ 617,210 Required a. Convert the static budget into a flexible budget. b. Calculate the variances.

Zachary Medical Equipment Company

Production Department Flexible Budget for 2019:

Flexible Budget Actual Results Variance

24,900 kits 24,900 kits 0

Direct Materials $179,280 $217,180 ($37,900) U

Direct Labor $154,380 $147,280 $7,100 F

Variable Overhead $37,350 $39,850 ($2,500) U

Total Variable Costs $371,010 $404,310 ($33,300) U

Fixed Overhead $212,900 $212,900 0

Total Cost $583,910 $617,210 $33,300 U

The following costs were flexed, using the budgeted and actual production units:

a) Direct materials cost = $165,600/23,000 * 24,900 = $179,280

b) Direct labor cost = $142,600/23,000 * 24,900 = $154,380

c) Variable overhead = $34,500/23,000 * 24,900 = $37,350

d) Fixed overhead under flexible budget would equal actual.

Explanation:

A flexible budget is a budget that changes in accordance with the level of activity or production volume. It is unlike a static budget, which does not change no matter the activity level or production volume.

A flexible budget is better in order to appraise the performance of a manager. It judges a manager's performance based on flexed activity level. It is a better tool in decision making.

In this case, whereas, the static budget yielded a total variance of $57,510 unfavorable, the flexible budget resulted to a total variance of $33,300 unfavorable.