Shaw was relieved to see that the anticipated savings in material waste and rework seemed to have materialized. But, he was concerned that the union would press hard for higher wages given that actual unit costs came in below standard unit costs and operating income continued to climb. 1. Prepare a detailed variance analysis of the second quarter results relative to the static budget. Show how much of the improvement in operating income arose due to changes in sales volume and how much arose for other reasons. Calculative variances that isolate the effects of price and usage changes in direct materials and direct manufacturing labor. Make sure you break down your variance analysis into Level 1, 2, 3 and make sure you identify and disaggregate all variances to the extent possible.