Oakly Variance Case manufactures a single product, XR2. Oakly uses budgets and standards and control functions. Oakly makes use of its standards in order to budgeted cost per unit. For example, Exhibit A provides information on the budgeted variable costs per unit. When determining direct material costs for the planning (master) budget income statement, the $11.48 budgeted material cost per unit of XR2 would be used in the calculation. Exhibit A Budgeted (Standard) Variable Costs Per Unit of XR2 Raw material: 4.1 pounds at $2.80 per pound Direct labor: 1.2 direct labor hours at $24.00 per hour Variable overhead: 1.2 direct labor hours at $10.80 per hour Total variable budgeted (standard) cost per XR2 $11.48 28.80 12.96 $53.24 The standards for fixed manufacturing overhead costs are: 1.2 direct labor hours at $14.00 per hour. The standard fixed manufacturing overhead rate per hour is calculated based on a denominator level of activity of 45,000 direct labor hours. The planning budget income statement is based on the expectation of selling 38,000 units of XR2. The budgeted sales price is $76.00 per unit, and total budgeted fixed selling and administrative costs are $186,500. There are no variable selling and administrative costs in this firm. The company actually produced and sold 36,000 units this year. The company never has a beginning or ending raw materials inventory, because it uses all raw materials purchased. Also, the company never has a beginning or ending finished goods inventory. Everything produced in the year is sold in that same year. BEBET ASEGAR Entos The actual income statement for the vear is provided in Exhibit B. Exhibit B Oakly Inc. Actual Income Statement $2,808,000 Sales: 36,000 units at $78.00 Less Variable Costs: Direct materials Direct labor Variable manufacturing overhead Contribution margin Less Fixed Costs: Fixed manufacturing overhead costs Fixed selling and administrative costs Net operating income 436,500 1,040,250 482,000 849,250 625,400 175,000 $ 48,850 Actual production data and actual costs for the year are given in Exhibit C. Exhibit C Direct materials purchased and used: Direct labor: Variable overhead costs: Fixed overhead costs: 150,000 pounds at $2.91 per pound 43,800 direct labor hours at $23.75/hr. $482,000 $625,400 Production 36,000 units Required: The solution to this case must be typed. 1. Prepare a detailed income statement variance analysis using the contribution approach income statement (i.e., variable costing basis) for the year (i.e., compare the planning budget income statement with the flexible budget income statement and compare the flexible budget income statement with the actual income statement). Show all the activity, revenue, and spending variances appearing in the income statement analysis. A template for answering this question is given below. All variances should be marked with either an F for favorable or U for unfavorable. Oakly Variance Case Solution Template for Part 1 Actual Results $$$ Revenue & Spending Variances Flexible Budget Activity Variances $$$ Master Budget $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ $$$ Sales Less V.C. DM DL V-OH CM Less FC Manufacturing Sell & Admin NOI $$$ $$$ $$$ $$$ $$$ $$$ $$$