In your report to the CEO, you are to provide the following:

a) A flexible budget based on the actual volume that was sold last year for both leather and vegan-polymer purses;

b) Calculations of the direct materials and direct labour cost and efficiency variances

c) Explanations of what may have caused the variances to occur; d) Recommend which variances should be investigated; and

e) Recommend at least two actions the company can take to rectify the variances.

Exhibit 1 Actual Results Static Budget Leather Vegan- Total Leather Vegan- Total Polymer Polymer 12,500 16,500 29,000 15,000 5,000 20,000 $1,875,000 $1,980,000 $3,855,000 $2,250,000 $600,000 $2,850,000 Sales volume Sales revenue Direct materials Direct labour Variable overhead Total variable cost Contribution margin Fixed overhead Net income $258,300 480,000 75.000 $813.300 $1,061,700 $598,500 $856,800 $300,000 432,608 912,608 600,000 99.000 174.000 90.000 $1,130,108 $1.943.408 $990,000 $849,893 $1,911,593 $1,260,000 $920.000 $991,593 $135,000 $450,000 135,000 735,000 30.000 120.000 $300,000 $1.290.000 $300,000 $1,560,000 $920.000 $640,000 Standards from last year Standard price/rate (per metre/hour) Leather Vegan- polymer Direct materials $40 per m $36 per m Direct labour $20/hr $18/hr Variable overhead allocated at a rate of $6 per unit Standard quantity/hour per unit Leather Vegan- polymer 0.5 m 0.75 m 2 hrs 1.5 hrs Actual results Actual quantities Leather Actual price/rate (per metre/hour) Leather Vegan- polymer $41 per m $42 per m $20 /hr $15.30 /hr Direct materials Direct labour 6,300 m 24,000 hrs Vegan- polymer 14,250 m 28,275 hrs