In Tasmania Manufacturing's costing system, both variable and fixed manufacturing overhead are allocated to products based on standard direct manufacturing labour-hours (DLH). The company had the following standards for its manufacturing costs for 2020:

Input

Cost per output unit

Direct materials

3.5 kg at $5 per kilogram

$17.50

Direct manufacturing labour

5.5 hours at $15 per hour

$82.5.00

Manufacturing overhead

Variable

$6 per DLH

$33.00

Fixed

$8 per DLH

$44.00

Standard manufacturing cost per output unit

$177.00

Budgeted annual production for 2020 was 96,000 units. The denominator level for total manufacturing overhead per month in 2020 is 44,000 direct manufacturing labour-hours, and the flexible budget for July 2020 was based on this denominator level.

The records for July indicated that the actual production was 7,500 units and shows the following:

Direct material purchased 25,000 kg at $5.20 per kg

Direct material used 23,500 kg

Direct manufacturing labour 40,200 hours at $14.60 per hour

Variable manufacturing overhead incurred $250,000

Fixed manufacturing overhead incurred $320,000

Required

a.Make a performance report showing the Flexible Budget Variances for July 2020. [5 marks]

b.Identify two potential ethical dilemmas that might surface in the use of flexible budgeting for performance evaluation [3 marks]

c.For the month of July 2020, calculate the following variances, indicating whether each is favourable (F) or unfavourable (U).

i.Direct material price and efficiency variances [1 mark]

ii.Direct manufacturing labour rate and efficiency variances [1 mark]

iii.Variable manufacturing overhead spending and efficiency variances

[1 mark]

iv.Fixed manufacturing overhead spending and volume variances

[1 mark]

[Total for Question 3= 12 marks]