Namaste Company manufactures a unique yoga mat.The company began operations December 1, 2018. Its accountant quit the second week of operations, and the company is searching for a replacement. The company has decided to test the knowledge and ability of all candidates interviewing for the position.

Cost Items and Account Balances

Administrative salaries$15,500

Advertising11,000

Cash, December 1-0-

Depreciation on factory building1,500

Depreciation on office equipment800

Insurance on factory building1,500

Miscellaneous expensesfactory1,000

Office supplies expense300

Professional fees500

Property taxes on factory building400

Raw materials used70,000

Rent on production equipment6,000

Research and development10,000

Sales commissions40,000

Utility costsfactory900

Wagesfactory70,000

Work in process, December 1-0-

Work in process, December 31-0-

Raw materials inventory, December 1-0-

Raw materials inventory, December 31-0-

Raw material purchases70,000

Finished goods inventory, December 1-0-

Production and Sales Data

Number of mats produced10,000

Expected sales in units for December

($40 unit sales price)8,000

Expected sales in units for January10,000

Desired ending inventory20% of next month's sales

Direct materials per finished unit1 kilogram

Direct materials cost$7 per kilogram

Direct labor hours per unit.35

Direct labor hourly rate$20

Cash Flow Data

Cash collections from customers: 75% in month of sale and 25% the following month.

Cash payments to suppliers: 75% in month of purchase and 25% the following month.

Income tax rate: 45%.

Cost of proposed production equipment: $720,000.

Manufacturing overhead and selling and administrative costs are paid as incurred.

Desired ending cash balance: $30,000.

Using all the data presented above, do the following.

1. Prepare a flexible budget for manufacturing costs for activity levels between 8,000 and

10,000 units, in 1,000-unit increments.

2. Identify one potential cause of direct materials, direct labor, and manufacturing overhead variances in the production of the helmet.