Gorilla Ltd. makes a standard product, which is budgeted to sell at $4.00 a unit, in a competitive market. It is made by taking a budgeted 0.4 kg of material, budgeted to cost $2.40/kg and having it worked on by hand by an employee, paid a budgeted $8.00/hour, for a budgeted 6 minutes. Monthly fixed overheads are budgeted at $4,800. The output for May was budgeted at 4,000 units

The actual results for May were as follows:

Sales revenue (3,500 units) 13,820

Materials (1,425 kg) (3,420)

Labor (345 hours) (2,690)

Fixed overheads (4,900)

Actual operating profit 2,810

No inventories of any description existed at the beginning or end of the month.

Required:

a. Prepare the flexible budget and compare it to the actual results.

b. Calculate all the variances in as much detail as the information provided allows.

c. Reconcile the budget variances.