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I don't need some very specific answers, please just treat it as a short-answer question. Thank you!

Uncle Grumps Toys and had almost resulted in orders being rejected due to a lack of inventory. In fact, by year-end only 84,000 toys were left in stock. One morning in January 2013, John Worby, President of Uncle Grumps Toys, sat down with Anne McMullen, Executive Vice President, to discuss year-end performance evaluations of the management group. These discussions were important because the company had traditionally given managers a sizable bonus based on their evaluation. To the extent that it was possible, John and Anne preferred to base their evaluation on objective measures of performance with an emphasis on achievement of budgeted goals. John and Anne decided to discuss the production manager's performance first. The production manager, Holly Frost, had been with the firm for just over a year, and this was to be her first bonus. John and Anne admired Holly and felt she had been very innovative and had substantially improved the production process. One improvement, introduced at the beginning of the third quarter, resulted in the average material content of each toy being reduced from 5 lbs. to 4.5 lbs., a substantial savings. This savings has not yet been updated in the direct material standard. The budget process began in late August, and by mid-November the management team supplied the board of directors with a complete budget outlining monthly sales estimates, production cost estimates, and capital spending requirements. The directors then discussed the implications of the budget and, upon acceptance, authorized it. The firm's progress throughout the year was monitored against this budget every six months at the board meetings, which were held on the fifteenth of January and July. At the January meeting the board also voted on the management bonuses for the prior year. In measuring Holly's managerial performance, John and Anne felt that some adjustment was necessary because 2012 had been a rather turbulent year. The factory had been closed from February 5 to March 4 (20 working days) due to "The Great Blizzard of '12," and then the factory roof collapsed under the weight of three feet of snow. During this period employees did not work but were given half pay. Uncle Grumps Toys was a Boston-based company that manufactured a very successful line of foam rubber toys called "Uncle Grumps." These were cuddly Hobbit-like dolls with large noses, a discerning smile, and enormous feet, which sold for $20 wholesale. From the moment of introduction, they had been a runaway success. Plans to expand the line were on the drawing board, and a smaller baby version was to be introduced in the spring of 2013. To make up for lost production, a four-hour Saturday morning shift was introduced from March 7 until the end of the year. Employees were paid time-and-a- half for this work. Additional overtime was required in the fourth quarter when the sales department managed to gain a $750,000 order from a catalog sales company for an extra 50,000 toys. The order was placed in the middle of October and, along with other orders, required that overtime be increased to 16 hours per weekend, at time-and-a-half, for six weekends (this includes the Saturday morning time already planned). Sales for 2012 were 2,094,000 units. Ending inventory for 2012 was 34,000 units. The business was highly seasonal with over half of the sales occurring from mid-August to early November This was followed by a two-month trough before birthday and occasional gift sales picked up again. Sales were then fairly static until the next Christmas rush began. Budgeted sales for 2012 were $40 million with a standard gross margin, on full production cost, of 24 percent. Management had decided that even though sales were highly seasonal, production would be level throughout the year. This enabled Uncle Grumps Toys to stabilize employment and to sell a greater number of toys during the Christmas period than would have been possible if a shift approach had been used. Current production was at full capacity using one shift a day, five days a week. In 2011 sales were considerably greater than expectation John and Anne started with the budgeted and actual figures reported in Exhibit 1. The company had not implemented a standard cost system. Because unit costs were relatively stable, direct materials were tracked in pounds, direct labor in hours, and actual usage was compared with budget. Before they could adequately judge Holly's performance, however, John and Anne decided they needed additional information. John spoke with the materials inventory clerk and came back with an inventory listing (Exhibit 2) and a reminder that the company used FIFO inventory costing. Anne spoke with the payroll clerk and was given a summary of quarterly payroll listings (Exhibit 3). "That's first on the agenda when we finish coffee. But there is something else bothering me and that is a comment Holly made about those catalog sales," said John. "What was that?" asked Anne. Looking at the pile of information they had collected, John and Anne settled down to the process of evaluating Holly's performance. After several hours John and Anne took a break. They felt they had made progress but still were not certain that they knew how Holly had performed. "Well, Holly thinks we lost money on the deal because we sold them to the catalog company below cost." Over coffee Anne remarked to John, "Well, now we have a lot of facts but it's not clear to me how we can use them to analyze Holly's performance." "Didn't you explain to her about contribution analysis?" asked Anne. "I have the same concern," replied John. "There are so many numbers and only some are relevant to Holly." "Well, yes, but she said she understood that, and we were still losing out. Unfortunately, she was called away before she could explain to me what she meant." "I know, but which ones? That's the question." Exhibit 1 Quarterly Production Report (all figures in thousands) Quarterly Budget Quarterly Actuals 2 3 Total 2012 1 4 Variable Costs: Raw materials. Direct labor Indirect labor .......... Supplies Power $1,800* 3,8487 300 75 375 $1,310 3,205 250 50 270 $1,835 4,406 350 100 420 $1.775 4,466 356 50 410 $2,002 5,453 410 90 450 $ 6,922 17,530 1,366 290 1,550 Fixed Costs: Repairs and maintenance Depreciation Insurance 300 700 250 $7,648 130 700 252 $6,267 120 700 231 $8,162 500 700 260 $8,517 280 700 260 $9,645 1,030 2,800 1,003 $32,491 Units produced. 500 350 550 550 600 2,050 * Budget based on 5 lbs./toy Budget based on 0.962 hr./toy Exhibit 2 Summary of Raw Material Inventory Movements (all figures in thousands) lbs. Opening balance (Dec. 6, 2011). Purchases (Dec. 6, 2011-Dec. 4, 2012) at $0.7255 per lb. Usage (Dec. 6, 2011-Dec. 4, 2012).. Closing balance (December 4, 2012) 718 10,000 (9,570) 1,148 lbs. Exhibit 3 Summary of Direct Labor Expenses (all figures in thousands, except employees) Average Number Regular of Employees Hours Overtime Hours Costt 13 weeks ending 3/6/12 13 weeks ending 6/5/12 13 weeks ending 9/4/12 13 weeks ending 12/4/12. Total. 960 970 980 990 494* 500 505 510 2,009 0 52 54 135 241 $ 3,205 4,406 4,466 5,453 $17,530 * Includes the 153,000 hours when the factory was closed for 20 days, during which time employees received half pay. Holly was responsible for negotiating all labor contracts. Required: 1. Develop a static and flexible budget for the year using the quarterly budget information provided in Exhibit 1. For the static budget, determine the total number of units budgeted for the year and then calculate the fixed and variable costs for that amount of production. (Hint: Using the quarterly information, calculate a cost per unit for variable costs and then calculate the total cost for the total budgeted units). Develop the retrospective flexible budget based on the actual quantity produced during the year. a. Based on the actual results, calculate the static and flexible budget variances. b. Why are the variances for certain categories of costs quite different between the flexible and static budget? c. Are the static budget variances or the flexible budget variances more useful to evaluate Holly's performance? Explain your viewpoint. 2. Calculate the price and efficiency variances for direct material. a. Should these variances be investigated? Explain. b. Assume that both variances should be investigated, what questions could John and Anne ask Holly that could help you determine the cause of the variances? List at least two. c. For the next period, should the Master Budget standard pounds of raw materials per unit be changed? Explain. 3. Calculate the total spending variance for fixed overhead. Does this variance need to be investigated? What are possible causes of the variances? Explain. 4. To better analyze the flexible budget variance for direct labor, calculate the price and efficiency variances for direct labor. Discuss the possible causes for the variances. 5. The case discusses two events during the year that impacted the use of labor (and therefore the unfavorable flexible budget variance for direct labor): the 50,000 unit sales to the catalog company and the storm. Calculate the following: a. Assume that the special order of 50,000 toys was produced at the standard amount of time per toy but all of those hours required an overtime premium. Calculate the number of labor hours required and the amount of overtime paid. Deduct this overtime premium from the total flex-budget variance for direct labor calculated in part 1 to determine the unexplained portion of labor variance. b. In addition to the special order overtime, employees worked overtime to catch up on production. Deduct the overtime hours from the special order from the total overtime hours and calculate the overtime premium paid, in total, to catch up after the closure. Deduct this from the unexplained labor variance calculated in question 5 part a to determine the remaining amount of the unexplained labor variance. c. Using the information at the bottom of Exhibit 3, calculate the amount of pay employees received during the plant closure. Deduct this amount from the unexplained variance from question 5 part b to determine the remaining unexplained labor variance. Should this remaining variance be investigated? Explain. 6. Evaluate the variances that you calculated and determine whether Holly should be held responsible for each one of them. Based off Holly's responsibilities regarding her managerial role, does she deserve a bonus? Explain. Uncle Grumps Toys and had almost resulted in orders being rejected due to a lack of inventory. In fact, by year-end only 84,000 toys were left in stock. One morning in January 2013, John Worby, President of Uncle Grumps Toys, sat down with Anne McMullen, Executive Vice President, to discuss year-end performance evaluations of the management group. These discussions were important because the company had traditionally given managers a sizable bonus based on their evaluation. To the extent that it was possible, John and Anne preferred to base their evaluation on objective measures of performance with an emphasis on achievement of budgeted goals. John and Anne decided to discuss the production manager's performance first. The production manager, Holly Frost, had been with the firm for just over a year, and this was to be her first bonus. John and Anne admired Holly and felt she had been very innovative and had substantially improved the production process. One improvement, introduced at the beginning of the third quarter, resulted in the average material content of each toy being reduced from 5 lbs. to 4.5 lbs., a substantial savings. This savings has not yet been updated in the direct material standard. The budget process began in late August, and by mid-November the management team supplied the board of directors with a complete budget outlining monthly sales estimates, production cost estimates, and capital spending requirements. The directors then discussed the implications of the budget and, upon acceptance, authorized it. The firm's progress throughout the year was monitored against this budget every six months at the board meetings, which were held on the fifteenth of January and July. At the January meeting the board also voted on the management bonuses for the prior year. In measuring Holly's managerial performance, John and Anne felt that some adjustment was necessary because 2012 had been a rather turbulent year. The factory had been closed from February 5 to March 4 (20 working days) due to "The Great Blizzard of '12," and then the factory roof collapsed under the weight of three feet of snow. During this period employees did not work but were given half pay. Uncle Grumps Toys was a Boston-based company that manufactured a very successful line of foam rubber toys called "Uncle Grumps." These were cuddly Hobbit-like dolls with large noses, a discerning smile, and enormous feet, which sold for $20 wholesale. From the moment of introduction, they had been a runaway success. Plans to expand the line were on the drawing board, and a smaller baby version was to be introduced in the spring of 2013. To make up for lost production, a four-hour Saturday morning shift was introduced from March 7 until the end of the year. Employees were paid time-and-a- half for this work. Additional overtime was required in the fourth quarter when the sales department managed to gain a $750,000 order from a catalog sales company for an extra 50,000 toys. The order was placed in the middle of October and, along with other orders, required that overtime be increased to 16 hours per weekend, at time-and-a-half, for six weekends (this includes the Saturday morning time already planned). Sales for 2012 were 2,094,000 units. Ending inventory for 2012 was 34,000 units. The business was highly seasonal with over half of the sales occurring from mid-August to early November This was followed by a two-month trough before birthday and occasional gift sales picked up again. Sales were then fairly static until the next Christmas rush began. Budgeted sales for 2012 were $40 million with a standard gross margin, on full production cost, of 24 percent. Management had decided that even though sales were highly seasonal, production would be level throughout the year. This enabled Uncle Grumps Toys to stabilize employment and to sell a greater number of toys during the Christmas period than would have been possible if a shift approach had been used. Current production was at full capacity using one shift a day, five days a week. In 2011 sales were considerably greater than expectation John and Anne started with the budgeted and actual figures reported in Exhibit 1. The company had not implemented a standard cost system. Because unit costs were relatively stable, direct materials were tracked in pounds, direct labor in hours, and actual usage was compared with budget. Before they could adequately judge Holly's performance, however, John and Anne decided they needed additional information. John spoke with the materials inventory clerk and came back with an inventory listing (Exhibit 2) and a reminder that the company used FIFO inventory costing. Anne spoke with the payroll clerk and was given a summary of quarterly payroll listings (Exhibit 3). "That's first on the agenda when we finish coffee. But there is something else bothering me and that is a comment Holly made about those catalog sales," said John. "What was that?" asked Anne. Looking at the pile of information they had collected, John and Anne settled down to the process of evaluating Holly's performance. After several hours John and Anne took a break. They felt they had made progress but still were not certain that they knew how Holly had performed. "Well, Holly thinks we lost money on the deal because we sold them to the catalog company below cost." Over coffee Anne remarked to John, "Well, now we have a lot of facts but it's not clear to me how we can use them to analyze Holly's performance." "Didn't you explain to her about contribution analysis?" asked Anne. "I have the same concern," replied John. "There are so many numbers and only some are relevant to Holly." "Well, yes, but she said she understood that, and we were still losing out. Unfortunately, she was called away before she could explain to me what she meant." "I know, but which ones? That's the question." Exhibit 1 Quarterly Production Report (all figures in thousands) Quarterly Budget Quarterly Actuals 2 3 Total 2012 1 4 Variable Costs: Raw materials. Direct labor Indirect labor .......... Supplies Power $1,800* 3,8487 300 75 375 $1,310 3,205 250 50 270 $1,835 4,406 350 100 420 $1.775 4,466 356 50 410 $2,002 5,453 410 90 450 $ 6,922 17,530 1,366 290 1,550 Fixed Costs: Repairs and maintenance Depreciation Insurance 300 700 250 $7,648 130 700 252 $6,267 120 700 231 $8,162 500 700 260 $8,517 280 700 260 $9,645 1,030 2,800 1,003 $32,491 Units produced. 500 350 550 550 600 2,050 * Budget based on 5 lbs./toy Budget based on 0.962 hr./toy Exhibit 2 Summary of Raw Material Inventory Movements (all figures in thousands) lbs. Opening balance (Dec. 6, 2011). Purchases (Dec. 6, 2011-Dec. 4, 2012) at $0.7255 per lb. Usage (Dec. 6, 2011-Dec. 4, 2012).. Closing balance (December 4, 2012) 718 10,000 (9,570) 1,148 lbs. Exhibit 3 Summary of Direct Labor Expenses (all figures in thousands, except employees) Average Number Regular of Employees Hours Overtime Hours Costt 13 weeks ending 3/6/12 13 weeks ending 6/5/12 13 weeks ending 9/4/12 13 weeks ending 12/4/12. Total. 960 970 980 990 494* 500 505 510 2,009 0 52 54 135 241 $ 3,205 4,406 4,466 5,453 $17,530 * Includes the 153,000 hours when the factory was closed for 20 days, during which time employees received half pay. Holly was responsible for negotiating all labor contracts. Required: 1. Develop a static and flexible budget for the year using the quarterly budget information provided in Exhibit 1. For the static budget, determine the total number of units budgeted for the year and then calculate the fixed and variable costs for that amount of production. (Hint: Using the quarterly information, calculate a cost per unit for variable costs and then calculate the total cost for the total budgeted units). Develop the retrospective flexible budget based on the actual quantity produced during the year. a. Based on the actual results, calculate the static and flexible budget variances. b. Why are the variances for certain categories of costs quite different between the flexible and static budget? c. Are the static budget variances or the flexible budget variances more useful to evaluate Holly's performance? Explain your viewpoint. 2. Calculate the price and efficiency variances for direct material. a. Should these variances be investigated? Explain. b. Assume that both variances should be investigated, what questions could John and Anne ask Holly that could help you determine the cause of the variances? List at least two. c. For the next period, should the Master Budget standard pounds of raw materials per unit be changed? Explain. 3. Calculate the total spending variance for fixed overhead. Does this variance need to be investigated? What are possible causes of the variances? Explain. 4. To better analyze the flexible budget variance for direct labor, calculate the price and efficiency variances for direct labor. Discuss the possible causes for the variances. 5. The case discusses two events during the year that impacted the use of labor (and therefore the unfavorable flexible budget variance for direct labor): the 50,000 unit sales to the catalog company and the storm. Calculate the following: a. Assume that the special order of 50,000 toys was produced at the standard amount of time per toy but all of those hours required an overtime premium. Calculate the number of labor hours required and the amount of overtime paid. Deduct this overtime premium from the total flex-budget variance for direct labor calculated in part 1 to determine the unexplained portion of labor variance. b. In addition to the special order overtime, employees worked overtime to catch up on production. Deduct the overtime hours from the special order from the total overtime hours and calculate the overtime premium paid, in total, to catch up after the closure. Deduct this from the unexplained labor variance calculated in question 5 part a to determine the remaining amount of the unexplained labor variance. c. Using the information at the bottom of Exhibit 3, calculate the amount of pay employees received during the plant closure. Deduct this amount from the unexplained variance from question 5 part b to determine the remaining unexplained labor variance. Should this remaining variance be investigated? Explain. 6. Evaluate the variances that you calculated and determine whether Holly should be held responsible for each one of them. Based off Holly's responsibilities regarding her managerial role, does she deserve a bonus? Explain