Cake Ltd is a cake delivery service. It delivers cakes and pastries from bakeries around town to customers who phone in their orders. The management accountant of Cake Ltd is reviewing last month's overheads. Variable overhead costs for items such as drivers' wages and fuel were budgeted at $15 per home delivery hour. Fixed overheads for the month were budgeted at $33,000. The budgeted number of home deliveries was 3,000. The accountant uses average delivery time as the base for allocating overheads. She budgeted that one delivery should on average take 45 minutes.

Actual results for the past month were $34,292 variable overhead, $31,808 fixed overhead, 2,450 hours of home delivery time, and 3,200 home deliveries.

1. Calculate spending and efficiency variances for Cake Ltd's variable and fixed overhead for last month and evaluate the results.

2.Why might managers find a Level 3 analysis more informative than a Level 2 analysis? Use the case of Cake Ltd as an illustrative example. Clearly state any assumptions you make.