Caroline Farr Is Manager of a Production Department of Helling

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?