Question

Murphy Company managers received the following incomplete performance report:

Units Actual Results Flexible Budget Variance Static Budget Flexible Budget Sales Volume Variance Sales Revenue Contribution Margin Fixed Expenses Operating Income 35,000 (a) (b) 5,000 F \( 29,000 \) 14,000 105,000 0 \( 219,000 \) 27,000 F 85,000 13,000 MURPHY COMPANY Flexible Budget Performance Report For the Year Ended July 31, 2018 134,000 14,000 35,000 \( 35,000 100,000 \) 219,000 84,000 135,000 (c) (d) (e) (f) (h) (g) (i) (j) (k) (l)

Complete the performance report. Identify the employee group that may deserve praise and the group that may be subject to criticism. Give your reasoning.

Short answer

The flexible budget performance reports are prepared as per the data provided. The sales team is performing well but on the other hand, the performance of the production and administration team is not up to the mark.

Step-by-step solution

Preparation of flexible budget

Murphy Company
Flexible Budget Performance Report
For the year ended July 31, 2018
	Actual ($)	Flexible Budget Variance ($)	Flexible Budget ($)	Sales Volume Variance	Static Budget
Units	35,000	0	35,000	5,000 F	30,000
Sales Revenue	219,000	0	219,000	27,000 F	192,000
Variable expenses	85,000	1,000 U	84,000	13,000 U	71,000
Contribution Margin	134,000	1,000 U	135,000	14,000 F	121,000
Fixed Expenses	105,000	5,000 U	100,000	0	100,000
Operating Income	29,000	6,000 U	35,000	14,000 F	21,000

Preparation of flexible budget

The sales team or group of the company deserves praise as they have achieved better sales volume than the budgeted sales volume, which is reflected by the volume variance.

The group responsible for production and administration deserves criticism as the actual variable expenses and fixed expenses have gone up in comparison to the amounts shown in the budgets, which are reflected by flexible budget variance for variable costs (1,000 U) and flexible budget variance for fixed expenses (5,000 U).