McKnight Recliners manufactures leather recliners and uses flexible budgeting and a standard cost system. McKnight allocates overhead based on yards of direct materials. The company's performance report includes the following selected data:

Requirements
1. Prepare a flexible budget based on the actual number of recliners sold.
2. Compute the cost variance and the efficiency variance for direct materials and for direct labor. For manufacturing overhead, compute the variable overhead cost, variable overhead efficiency, fixed overhead cost, and fixed overhead volume variances. Round to the nearest dollar.
3. Have McKnight's managers done a good job or a poor job controlling materials, labor, and overhead costs? Why?
4. Describe how McKnight's managers can benefit from the standard cost system?

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Static Budget (1,025 recliners) (1,005 recliners) Actual Results Sales $ 512,500 (1,025 recliners X $500 each) $ 497,475 (1,005 recliners x $495 each) Variable Manufacturing Costs: Direct Materials (6,150 yds. @ $8.50/yard) 52,275 (6,300 yds. @ $8.30/yard) 52,290 Direct Labor (10,250 DLHr e $9.20/DLHT) 94,300 (9,850 DLHR @ $9.40/DLHT) 92,590 Variable Overhead (6,150 yds. @ $5.10/yard) 31,365 (6,300 yds. @ $6.50/yard) 40,950 Fixed Manufacturing Costs: Fixed Overhead 62,730 64,730 Total Cost of Goods Sold 240,670 250,560 $ 271,830 $ 246,915 Gross Profit