LawnMate Company manufactures power mowers that are sold throughout the United States and Canada. The company uses a comprehensive budgeting process and compares actual results to budgeted amounts on a monthly basis. Each month, LawnMates 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
	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
Fixed general and administrative cost		120,000			115,000			5,000	F
Operating income	$	140,000		$	77,000		$	63,000	U

When the master budget was prepared, LawnMates cost accountant, Joan Ballard, supplied the following unit costs: direct material, $60; direct labor, $44; variable production overhead, $36; and variable selling expenses, $12. The total variable costs 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 believes that LawnMates monthly reports would be more meaningful to everyone if the company adopted flexible budgeting and prepared more detailed analyses. Required: 1. Prepare a flexible budget for LawnMate Company for the month of May. 2. Determine the variance between the flexible budget and actual cost for each cost item.