Exercise 1: What is the Responsibility Report variance for Direct Labor and is it Favorable (F) or Unfavorable (U)? See circle on the printed exercise. A complete answer must have both the dollar variance amount and the F or U designation.

EXERCISE 1 Responsibility Report: Peak Outdoors produces and sells hiking gear. The production department reported the following information regarding its unique line of backpacks. Included are the static budget and actual results for the most recent year. Static Budget 24,000 units $144,000 Actual Results 27,000 units Units Produced Direct Materials $174,500 Direct Labor 216,000 236,250 Manufacturing OH- Variable 36,000 34,000 Total Variable Costs $396,000 $444,750 Manufacturing OH- Fixed 90,000 98,000 Total Manufacturing Cost $486,000 $542,750 Prepare a Flexible Budget for Peak based on the information above. To do so, you must first determine the cost per unit data of the Static Budget: Per Unit Static Budget $144,000 Budgeted Units / 24,000 units Direct Materials $ Direct Labor 216,000 / 24,000 units $ Manufacturing OH- Variable 36,000 1 24,000 units $ Remember that Total Fixed Manufacturing Overhead does not fluctuate with units produced, so the difference in the Static and Actual amounts is purely a Spending Variance. Now, use the per unit budgeted amounts to prepare a Flexible Budget (Actual units X Budget per unit) and calculate variances (Responsibility Report). Be sure to interpret each variance as either Favorable (F) or Unfavorable (U). Calculations Flexible Budget Actual Results Variances Responsibility Report Direct Materials Direct Labor Manufacturing Overhead- Variable Total Variable Costs Manufacturing Overhead- Fixed Total Manufacturing Cost