Gray System assembles PCs and uses flexible budgeting and a standard cost system. Gray System allocates overhead based on the number of direct materials parts. The company€™s performance report includes the following selected data:

Requirements
1. Determine the company€™s standard cost for one unit.
2. Prepare a flexible budget based on the actual number of PCs sold.
3. Compute the price variance for direct materials and for direct labour.
4. Compute the efficiency variances for direct materials and direct labour.
5. For manufacturing overhead, compute the total variance, the flexible budget variance, and the production volume variance.
6. What is the total flexible budget variance for Gray System€™s manufacturing costs? Show how the total flexible variance is divided into materials, labour, and overhead variances.
7. Have Gray System€™s managers done a good job or a poor job controlling material and labour costs? Why?
8. Describe how Gray System€™s managers can benefit from the standard costing system.

Static Budget (20,500 PCs) $8,507,500 Actual Results (22,500 PCs) Sales (20,500 PCs x $415) (22,500 PCs x $435) Direct materials (205,000 parts x $9.50) Direct labour (41,000 hrs x $14.00 Variable overhead (205,000 parts x $3.90) $9,787,500 Variable manufacturing expenses O....1,947,500 (218,500 parts x $9.30) 2,032,050 574,000 (43,500 hrs x $14.60) 635,100 799,500 (218,500 parts x $4.00) 874,000 Fixed manufacturing costs: Total cost of goods sold Gross profit 902,000 4,223,000 $4,284,500 932,000 4,473,150 $5,314,350