1. The Morgan Company had great difficulty in controlling overhead costs. At a recent convention, the president heard about a control device for overhead costs known as a flexible budget and she has hired you to implement this budgeting program. After some effort, you develop the following cost formulas for the company's machining department. These costs are based on a normal operating range of 15,000 to 23,000 machine-hours per month:

Machine setup	$0.20 per machine-hour
Lubricants	$1.00 per machine-hour plus $8,000 per month
Utilities	$0.70 per machine-hour
Indirect labor	$0.60 per machine-hour plus $20,000 per month
Depreciation	$32,000 per month

During March, the first month after your preparation of the above data, the machining department worked 18,000 machine-hours and produced 9,000 units of product. The actual costs of this production were:

Machine set-up	$4,800
Lubricants	24,500
Utilities	12,000
Indirect labor	32,500
Depreciation	32,500
	$106,300

The department had originally been budgeted to work 19,000 machine-hours during March. Required: Prepare a performance report for the machining department for the month of March including columns for the (a) actual results, (b) flexible budget, (c) flexible budget variance, (d) master budget, and (e) sales activity variance.