Enigma Inc. makes and sells customized tires. The company expected to produce and sell 30,000 automobile tires during the Second quarter of 2019. Due to increased demand, 50,000 tires were produced and sold during the Second quarter of 2019. The following information is supplied about the Second quarter of 2019:

Production data for the Second quarter of 2019	Standard	Actual
	$	$
Selling price per unit	90.00	100.00
Direct materials cost per unit	25.00	30.00
Direct labor cost per unit	30.00	35.00
Variable manufacturing overhead (VMOH) cost per unit	15.00	10.00
Fixed costs:
Fixed manufacturing overhead (FMOH)	300,000	300,000

Required:

1. Using the template below, prepare the pro-forma income statements for the flexible budget (based on actual units) and actual results for the Second quarter of 2019. (show your working or write the formula on the top of each column).

Use your results to compute the flexible budget variances, indicating whether each variance is favorable or unfavorable.

Designer Inc. Income Statements for the Second quarter of 2019	Flexible budget based on actual units	Actual results	Flexible budget variances	Favorable or unfavorable? F/UF
Units (tires)
	$	$	$
Sales
Variable costs:
Direct materials
Direct labor
Variable MOH
Contribution margin
Fixed MOH
Net Income/loss

2. Enigmas accountant wishes you to prepare the flexible budget variances for direct labor. The following standard and actual data for direct labor are provided for the second quarter of 2019:

Direct labor: price and efficiency data	Standard	Actual
Direct labor rate per hour	$15.00 per hour	$14.00 per hour
Quantity of direct labor hour used per unit tire	2 hours per tire	2.5 hours per tire
Actual units of tire produced during the Second quarter of 2019		50,000 tires

Prepare the following flexible budget variances for direct material, clearly indicating whether each variance is favorable or unfavorable (show your working):

1. Direct labor rate variance

2. Direct labor efficiency or quantity variance

3. Total direct labor cost variance (i.e. the total flexible budget cost variance for direct labor)

Using your results from parts i) to iii), briefly explain whether the companys sourcing and use of direct labor were better or worse than planned during the Second quarter of 2019.