EMC manufactures many consumer products, and one of them is a gadget - EYS. The following budget data relates to the sales and production level of 12,000 units of EYS for 2015.

Sales price	$42 per unit
Variable costs:
Manufacturing	$14 per unit
Administrative	$3 per unit
Selling	$1 per unit
Fixed costs:
Manufacturing	$5 per unit
Administrative	$2 per unit

The fixed manufacturing overhead costs include $2.50 per unit allocated from service department G using the direct allocation method. If the reciprocal method was used, this allocation would be $1 per unit instead.

Greg is the production manager and his annual performance is due. His targets set at the beginning of the year (in a participative budgeting exercise) are to (1) meet sales and production volume target of 12,000 units of EYS as stated in the budget for 2015 with a unit profit margin of 40%; and (2) ensure that costs variances do not exceed 3% of budgeted amounts. The actual sales for 2015 was $545,000 and EMC sold 12,500 units of product EYS. All actual fixed costs exceeded budgeted amounts by exactly 3%. The actual total variable manufacturing, administrative and selling costs were $178,575, $38,825 and $12,500 respectively.

Required:

(a) Construct a flexible budget report that provides variance for each revenue and cost item for product EYS for 2015. (Label your variance as favourable (F) or unfavourable (U) where appropriate.)

(b) Greg believes he has performed well for 2015 because he managed to meet the sales and production target of 12,000 units. In addition, he managed to sell at a higher average price of $43.60 per unit.

(i) Do you agree with Gregs assessment of his performance? Explain.

(ii) Would your answer in part (i) be different if the reciprocal method was used to allocate manufacturing overhead from department G? Explain.

(c) Why is there a difference in the allocation of cost of service department G using the direct versus a reciprocal method? Discuss.