Paladium Ltd has manufactured and patented a unique addressable fire alarm. There is an increasing demand for this fire alarm in the market. The supervisor has decided to prepare a flexible budget to gain clarity on the costs that the company would incur while manufacturing the fire alarm. The company uses labour-hours as the denominator activity. The standard variable overhead costs per labourhour are given below.

The standard variable cost per addressable fire alarm is £45 and the standard selling price per addressable fire alarm is £60. The budgeted sales quantity of addressable fire alarms is 21,000 units. However, in the month of May, Paladium sold 20,000 addressable fire alarms.

Required
1. Prepare a flexible budget for 15,000 labour-hours, 18,000 labour-hours and 20,000 labour-hours.
2. Briefly explain the result if the supervisor had decided to prepare a static budget instead of a flexible budget.
3. Calculate the predetermined overhead rates for fixed overhead cost, for variable overhead costs and for total overhead cost for the following denominator activities:
(a) 15,000 labour-hours
(b) 20,000 labour-hours
4. Paladium Ltd started manufacturing hybrid fire alarms in May. The standard selling price per hybrid fire alarm is £75, and the standard variable cost per hybrid fire alarm is £62. The budgeted quantity of hybrid fire alarms to be sold in a month is 7,000 units. In the month of May, Paladium sold 5,000 hybrid fire alarms. The company now considers addressable fire alarms and hybrid fire alarms to be substitutes for each other. Calculate the following variances for the month of May:
(a) Sales mix variance for addressable fire alarms and hybrid fire alarms
(b) Sales quantity variance for addressable fire alarms and hybrid fire alarms
(c) Sales activity variance for addressable fire alarms and hybrid fire alarms

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Indirect materials Electricity Power Indirect variable overhead Selling and distribution expenses (variable) The budgeted total fixed overhead costs for a month are given below: Utilities Selling and distribution expenses (fixed) Per labour hour £7.50 4.50 3.50 6.00 6.30 £110,000 10,000