Santini Corporations budget for the first quarter of the year includes the following:

Planned Unit Sales 10,000

Sales $1,000,000

Fixed manufacturing costs:

Salaries $95,000

Utilities 7,500

Factory Rent 45,000

Maintenance/other 9,500

Total fixed manufacturing costs $157,000

Variable manufacturing costs:

Direct materials $300,000

Direct labor 250,000

Other 100,000

Total variable manufacturing costs $650,000

Actual results for the first quarter were as follows:

Actual Unit Sales 8,000

Sales $800,000

Fixed manufacturing costs:

Salaries $95,000

Utilities 7,500

Factory Rent 45,000

Maintenance/other 9,500

Total fixed manufacturing costs $157,000

Variable manufacturing costs:

Direct materials $250,000

Direct labor 232,500

Other 95,000

Total variable manufacturing costs $577,500

The plant manager believes he is due a bonus, as actual variable manufacturing costs were much lower than the budget.

Required: (Show all of your work, and all steps to each solution)

1. Prepare a flexible budget for sales at actual levels.

2. Respond to the plant managers request in a memo.