Kilgore Precision Machining (KPM) has a highly automated manufacturing process for producing a variety of auto parts. Through the use of computer-aided manufacturing and robotics, the company has reduced its labor costs to only 5% of total manufacturing costs. Consequently, the company does not account for labor as a separate item but instead accounts for labor as part of overhead. Consider a part used in antilock braking systems. The static budget for producing 750 units in March 20X1 is as follows: C H A P T E R 8 *3 lb/unit * $8/lb * 750 units. Direct materials $18,000* Overhead Supplies 1,875 Power 1,310 Rent and other building services 2,815 Factory labor 1,500 Depreciation 4,500 Total manufacturing costs $30,000 Direct materials $21,840* Overhead Supplies 2,132 Power 1,612 Rent and other building services 2,775 Factory labor 1,618 Depreciation 4,500 Total manufacturing costs $34,477 Supplies and power are variable, and the other overhead items are ! xed costs. Actual costs in March 20X1 for producing 900 units of the brake part were as follows: *KPM purchased and used 2,800 pounds of materials at $7.80 per pound. 1. Compute (a) the direct-materials price and quantity variances and (b) the flexible-budget variance for each overhead item. 2. Comment on the way KPM accounts for and controls factory labor.