Houston Corporation considers materials and labor to be completely variable costs. Expected production for the year is 50,000 units. At that level of production, direct materials cost is budgeted at $198,000, and direct labor cost is budgeted at $450,000.

1. Prepare a flexible budget for materials and labor for possible production levels of 55,000 and 65,000 units of product.
2. Assume that in the previous exercise the actual production was 60,000 units, materials cost was $247,000, and labor cost was $510,000. Compute the budget variances. Denote variances as favorable (F) or unfavorable (U).