Zippo manufactures plastic outdoor chairs. The controller put together the following static budget and actual income statements and the following additional information.

	Actual	Static Budget
Revenue	715,000	600,000
Direct materials	287,375	250,000
Direct manufacturing labor	250,250	150,000
Variable overhead	96,250	50,000
Fixed overhead	90,000	100,000
Operating income	(8,875)	50,000

Budget Information

• Zippo expects to sell 50,000 chairs during the year
• Each chair is budgeted to use 10 pounds of plastic and take 1/2 hour to manufacture
• Variable and fixed overhead are allocated based on direct manufacturing labor hours

Actual Performance

• Zippo sells 55,000 chairs during the year
• Each chair used 9.5 pounds of plastic and 0.7 hour to manufacture

Chapter 7 Questions

1. Prepare a flexible budget
2. What are the level 1 variances?
3. Compute price and efficiency variance for both direct material and direct manufacturing labor
4. Comment on the level 3 variances you computed