7-37 Flexible budget, direct materials, and direct manufacturing labour variances. Emer- LO 5 ald Statuary manufactures bust statues of famous historical figures. All statues are the same size. Each unit requires the same amount of resources. The following information is from the static budget for 2017: Expected production and sales 7,000 units Expected selling price per unit S 680 Total fixed costs $1,400,000 Standard quantities, standard prices, and standard unit costs follow for direct materials and direct manu- facturing labour: Standard Quantity Standard Price Standard Unit Cost Direct materials 10 kilograms $ 8 per kilogram $ 80 Direct manufacturing labour 3.7 hours $50 per hour $185 During 2017, actual number of units produced and sold was 4,800, at an average selling price of $720. Actual cost of direct materials used was $392,700, based on 66,000 kilograms purchased at $5.95 per kilo- gram. Direct manufacturing labour-hours actually used were 18,300, at the rate of $48 per hour. As a result, actual direct manufacturing labour costs were $878,400. Actual fixed costs were $1,170,000. There were no beginning or ending inventories. Required 1. Calculate the sales-volume variance and flexible-budget variance for operating income. 2. Compute price and efficiency variances for direct materials and direct manufacturing labour.LO 1, 2 8-48 Overhead variances, ethics. Carpenter Company uses standard costing. The company has a manu- facturing plant in Georgia. Standard labour-hours per unit are 0.50, and the variable overhead rate for the Georgia plant is $3.50 per direct labour-hour. Fixed overhead for the Georgia plant is budgeted at $1,800,000 for the year. Firm management has always used variance analysis as a performance measure for the plant. Tom Saban has just been hired as a new controller for Carpenter Company. Tom is good friends with the Georgia plant manager and wants him to get a favourable review. Tom decides to underestimate pro- duction, and budgets annual output of 1,200,000 units. His explanation for this is that the economy is slow- ing and sales are likely to decrease. At the end of the year, the plant reported the following actual results: output of 1,500,000 using 760,000 labour-hours in total, at a cost of $2,700,000 in variable overhead and $1,850,000 in fixed overhead. Required 1. Compute the budgeted fixed cost per labour-hour for the fixed overhead. 2. Compute the variable overhead spending variance and the variable overhead efficiency variance. 3. Compute the fixed overhead spending and volume variances. 4. Compute the budgeted fixed cost per labour-hour for the fixed overhead if Tom Saban had estimated production more realistically at the expected sales level of 1,500,000 units. 5. Summarize the fixed overhead variance based on both the projected level of production of 1,200,000 units and 1,500,000 units. ASSIGNMENT MATERIAL . 331 6. Did Tom Saban's attempt to make his friend, the plant manager, look better work? Why or why not? 7. What do you think of Tom Saban's behaviour overall