Greenleaf Inc., manufactures power mowers that are sold throughout the United States and Canada. The company used a comprehensive budgeting process and compares actual re¬

sults to budgeted amounts on a monthly basis. Each month, Greenleaf's Accounting De¬

partment prepares a variance analysis and distributes the report to all responsible parties.

A1 Richmond, production manager, is upset about the results for May that are shown be¬

low. Richmond, who is responsible for the cost of goods manufactured, has implemented several cost-cutting measures in the manufacturing area and is discouraged by the unfa¬

vorable variance in variable costs.

When the master budget was prepared, Greenleaf's cost accountant, Joan Ballard, had supplied the following unit costs.
Direct material $60 Direct labor 44 Variable overhead 36 Variable selling 12 The total variable costs of $780,000 for May are comprised of $320,000 for direct mater¬
ial, $192,000 for direct labor, $176,000 for variable overhead, and $92,000 for variable selling expenses. Ballard believes that Greenleaf's monthly reports would be more meaningful to everyone if the company adopted flexible budgeting and prepared more detailed analyses.
Required:
1. Using the data given above:

a. Prepare a flexible budget for Greenleaf Inc. for the month of May that includes sep¬
arate variable cost budgets.

b. Determine the flexible budget variances.
2. Discuss how the revised budget and variance data is likely to impact the behavior of A1 Richmond, production manager.

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Operating Results For the Month of May Master Budget Actual Variance 5,000 4,800 200 U $1,200,000 $1,152,000 $48,000 U 760,000 780,000 $ 372,000 20,000 U $68,000 U 180,000 115,000 5,000 F $ 140,000 $ 77,000 $63,000 U Units sold Revenue Variable costs Contribution margin Fixed overhead Fixed general and administrative costs Operating income $ 440,000 180,000 120,000