Sharp Ltd manufactures and sells a variety of coffee mugs. In the budget meeting for the year 2020, the Sales Director presented the following sales budget: Quarter 1 Budgeted sales units 1,500 Quarter 2 2,000 Quarter 3 Quarter 4 4,000 3,000 The business team also provided the following budget data for 2020: 1) Budgeted average selling price is $150 per unit. 2) Each coffee mug will require 5 g of raw materials with average purchase cost of $2 per g. 3) Each unit requires 0.5 direct labor hour. The direct labor rate is $25 per hour. 4) Budgeted fixed manufacturing overhead is $200,000 per quarter. 5) Budgeted variable manufacturing overhead is $20 per unit. 6) The company's inventory carrying policy is as follow: i) Finished goods: 20% of the following quarter's budgeted sales units. ii) Direct materials: 10% of the current quarter's budgeted production requirement. 7) Beginning inventory of direct material in Quarter 1 is expected to be 1,000 g. Required: (a) (b) Prepare the following operating budgets for Quarter 1, Quarter 2 and Quarter 3 of 2020. Show all workings clearly. (Note: you do not need to add up the quarterly numbers.) 1) Production budget (in units) 2) Direct materials purchases budget (in quantities and dollars) 3) Direct manufacturing labor budget (in dollars) 4) Manufacturing overhead budgets (in dollars) Suppose Sharp's actual direct material cost of 2020 Quarter 1 exceeds budget by $100,000. The CEO then holds John Ling, the Purchasing Director, responsible and John's performance evaluation is based solely on direct material cost variance. What problems do you see if this performance evaluation approach is applied to John? What is your recommendation?