It is currently Q4 2021 and CTC company is completing their budgeting process for 2022. Below is the information used to complete the budgets:

Expected Sales units: Q1 50,000 units with a 30% increase each quarter

Ending raw materials inventory: 20% of the next quarters expected production requirements

Ending finished goods inventory: 15% of next quarter's expected sales units

Q4 Production Budget 114,793 units

Raw materials are expected to cost $4 per pound, and each unit of production is expected to use 10 pounds of raw materials.

Required (10 Marks - show all steps)

A) The Chief Operating Officer wants to know how much the company is planning to spend on Direct Materials for each quarter for the first 3 quarters of the year. Prepare the necessary calculations to answer this question.

B) In Q3 the company actually produced 85,000 units and spent $3,500,000 on direct materials purchases. Management wants to know what their flexible variance for direct materials was in Q3. Calculate this variance and discuss a few possible reasons for the favourable or unfavourable variance?

C) Should the company use a static or flexible budget and why?