Caroline Farr Is Manager of a Production Department of Helling

question 88

Essay

Caroline Farr is manager of a production department of Helling Company. Her department makes one product; the following information for her department was accumulated for 2012: $\begin{array}{|l|r|r|}\hline&\text { Static Budget }&\text { Actual Results }\\\hline \text { Number of units } & 100,000 & 97,000 \\\hline \text { Direct materials cost } & \$ 800,000 & \$ 792,000 \\\hline \text { Direct labor cost } & \$ 400,000 & \$ 380,000 \\\hline \begin{array}{l}\text { Variable manufacturing } \\\text { overhead }\end{array} & \$ 200,000 & \$ 199,000 \\\hline \begin{array}{l}\text { Fixed manufacturing } \\\text { overhead }\end{array} & \$ 290,000 & \$ 292,000 \\\hline \text { Total } & \$ 1,690,000 & \$ 1,663,000 \\\hline\end{array}$
Required:
a) Prepare a flexible budget for the department's actual level of activity, 97,000 units.
b) Use the flexible budget to evaluate Ms. Farr's performance.
c) Why does the budget not include sales revenue and net income?

---

Definitions:

New Innovative Unit

A specialized group or department within an organization focused on developing innovative strategies, products, or services.

Market Mechanisms

The various processes and systems through which goods, services, and securities are traded in a market, determining prices through supply and demand.

Formal Lines

refer to the established, official communication channels and organizational structures in a company or institution, designed to facilitate order and efficiency.

Authority

The power or right to give orders, make decisions, and enforce obedience.