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Swiss Chocolate’s U.S. division is experiencing an increase in demand for the month

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Swiss Chocolate’s U.S. division is experiencing an increase in demand for the month of October due to the upcoming holiday season. The following fact pattern forms the basis for the static budget:Swiss Chocolate Manufacturing CompanyVariable costs totalFixed costs totalRaw materials$ 200,000Direct manufacturing labor$ 100,000Indirect manufacturing labor$ 52,500Factory insurance and utilities$ 31,500Depreciation – machinery and factory$ 38,500Repairs and maintenance – factory$ 14,000Selling, marketing and distribution expenses$ 20,000$ 40,000General and administrative expenses$ 60,000Variable cost and volume dataMilk chocolateRaw materials = 0.25 lbs x $2.00/lb.$ 0.50Direct labor = 0.025 hr x $10/hr.$ 0.25Volume in units400,000Sales per unit are $2.65.Required:In good form, prepare the static budget operating income in contribution format.Suppose sales demand increases to 500,000 units for October. Prepare the flexible budget for October in contribution format.Compute and reconcile the sales volume variance. Indicate whether the variance is favorable or unfavorable.Presume the following:Total direct costs incurred for October Raw materials = 135,000 lbs. used$ 300,000Direct labor = 12,000 hrs. incurred$ 112,600Volume in units515,000Using the three-pronged method to present your calculations, compute the direct materials price variance, the direct materials efficiency variance, the labor price variance, and the labor efficiency variance. Indicate whether these are favorable or unfavorable.Appraise the outcome of the direct cost variance and give one possible explanation for each of the variances. Be sure that your explanation is interrelated and provides a complete picture of performance for the Swiss Chocolate Manufacturing Company for October.

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