Cruze Companys budgeted prices for direct materials, direct manufacturing labor, and direct marketing (distribution) labor per luxury wallet are $50, $14, and $20, respectively. The president is pleased with the following performance report:

	Actual Costs	Static Budget	Variance
Direct materials	$398,500	$435,000	$36,500 F
Direct manufacturing labor	73,600	75,000	1,400 F
Direct marketing (distribution) labor	128,500	135,000	6,500 F

Required:

1.Actual output was 7,700 luxury wallets. Assume all three direct-cost items shown are variable costs.

2.Is the presidents pleasure justified? Prepare a revised performance report that uses a flexible budget and a static budget.