AEl - Flexible Budget (LOL) Turf Company manufactures lawn mowers. The company uses a comprehensive budgeting process and compares actual results to budgeted amounts monthly. Each month, the accounting department prepares a performance report to distribute to all responsible parties. Gavin, production manager, is upset about the results for May. Gavin, who is responsible for the cost of goods manufactured, has implemented several cost-cutting measures in the manufacturing area and is discouraged by the unfavourable variance in variable costs. Turf Company Performance Report For the Month of May Budget Actual Variance Units sold 5,000 5,800 Revenue $1,800,000 $2,088,000 $288.000 F Variable costs 1,140,000 1,359,000 219,000 Contribution margin $660.000 $729.000 $69.000 Fixed manufacturing overhead 270,000 270,000 Fixed general and administrative cost 180.000 172,500 7,500 F Operating income $210,000 $286.500 $76,500 F When the master budget was prepared, Turf's cost accountant, Jean, supplied the following unit costs: direct material $90, direct labour $66, variable manufacturing overhead $54 and variable selling expenses $18. The total variable costs of $1,359,000 for May include $545,000 for direct material, $358,000 for direct labour, $308,000 for variable manufacturing overhead and $148,000 for variable selling expenses. Jean believes that monthly reports would be more meaningful if the company adopted flexible budgeting and prepared more detailed analyses of the variable costs. Direct material and direct labour are charged to production at actual cost while manufacturing overhead is applied to production at the predetermined rate of 150% of the actual direct labour costs. Required: (a) Prepare a complete flexible budget performance report for Turf Company for the month of May that includes a detailed breakdown of each type of variable costs, with a sub-total for variable manufacturing costs. (b) Determine the variance between the flexible budget and actual reported data for each line item of the flexible budget performance report. (c) Comment on how Gavin's performance has changed under the flexible budget performance report. Explain the reasons behind the change. (d) State the variances that Gavin needs to investigate. Discuss the likely reasons for the variances and the likely steps Gavin would take to improve the variances