Lawnmate company manufactures power movers that are sold through out the United States and Canada. The Comapany uses comprehensive budegeting process and compares actual results to budgeted amounts on a monthly basis. Each month, Lawnmate's accounting department prepares a variance analysis and distributes the report to all responsible parties. Al Richmond, production manager is upset about the results for May. Richmond, who is responsible for the cost of goods manufactured, has implemented several cost-cutting measures in the manufacturing area and is discouraged by the unfavorable variance in variable costs
Lawnmate Company
Operating Results
For the month of May
	Master Budget	Actual	Variance
Units Sold	5,000	4,800	200	U
Revenue	1,200,000	1,152,000	48,000	U
Variable Cost	760,000	780,000	20,000	U
Contribution Margin	440,000	372,000	68,000	U
Fixed Production overhead	180,000	180,000	0
Fixed general and adminsitrative costs	120,000	115,000	5,000	F
Operating Income	140,000	77,000	63,000	U
When the master budget was prepared, Lawnmate's cost accountant, Joan Ballard, supplied the following unit costs:
Direct material	$60
Direct Labor	$44
Variable Production overhead	$36
Variable selling expenses	$12
Total variable cost of $780,000 for May include $320,000 for direct material, $192,000 for direct labor, $176,000 for variable production overhead and $92,000 for variable selling expenses. Ballard believe's that Lawnmate's montly reports would be more meaningful to everyone if the company adopted flexible budgetting and prepared more detailed analysis.
Required:
1. Prepare a flexible budget for Lawnmate company for the month of May. That includes separate variable - cost budgets for each type of costs ( Direct material etc )
2. Determine the variance between the flexible budget and actual cost for each cost item
3. Discuss how the revised budget and variance data are likely to impact the behaviour of Al Richmond, the prodcution manager
4. Build a spreadsheet: Contruct an excel spreadsheet to solve requirements 1 & 2 above. Show how the solution will change if the following information changes: Actual sales amounted to 4,700 units and actual fixed overhead was $179,000.