"It certainly is nice to see that small variance on the income statement after all the trouble we've had lately in controlling manufacturing costs," said Linda White, vice president of Molina Company. The $2,250 variance reported last period is well below the 3% limit we have set for variances. We need to congratulate everybody on a job well done." The income statement to which Ms. White was referring is shown below:

	20,000 units
	Actual	Budgeted	Variance
Sales	$1,200,000	$1,200,000	$ -
Less cost of goods sold
(standard cost, $38 per unit)	762,250	760,000	2,250
Gross margin	437,750	440,000	(2,250)
Less operating expenses:
Selling expenses	200,000	200,000	-
Administrative expenses	150,000	150,000	-
Total operating expenses	350,000	350,000	-
Net income	$ 87,750	$ 90,000	$(2,250)

The company produces and sells a single product.The standard cost card for the product follows:

Standard Cost Card - Per Unit

Direct materials, 4 yards at $3.50.................$14

Direct labor, 1.5 hours at $8...........................12

Variable overhead, 1.5 hours at $2...................3

Fixed overhead, 1.5 hours at $6.......................9

Standard cost per unit.............................$38

The following additional information is available for the year just completed:

a. The company manufactured and sold 20,000 units of product during the year.

b. A total of 78,000 yards of material were purchased during the year at a cost of $3.75 per yard. All of this material was used to manufacture the 20,000 units. There were no beginning or ending inventories for the year.

c. The company worked 32,500 direct labor-hours during the year at a cost of $7.80 per hour.

d.Overhead cost is applied to products on the basis of direct - labor-hours. Data relating to overhead costs follow:

Denominator activity level (direct labor- hours) 25,000 Budgeted fixed overhead costs (from the flexible budget) $150,000 Actual fixed overhead costs 148,000 Actual variable overhead costs 68,250

e. All variances are closed to cost of goods sold at the end of each year.

Required:

1. Analyze variances as best as you can for the year.

2. Do you agree that everyone should be congratulated for a job well done?Explain.