^{Blake Koepka’s goal has always been to design the finestputters for the best golfers in the world. Blake’s latest inventionis the “Happy Gilmore,” a triangular-shaped mallet-style putterthat has the highest moment of inertia of any putter ever made. Theputter, which is milled from aircraft-quality aluminum andtungsten, has a substantial amount of mass located several inchesbehind the putter face, giving it a deep center of gravity. Thisdeep center of gravity makes the Gilmore very stable and forgiving,which should help the golfer make more putts. Prior to the start ofthe year, Blake’s management team developed the following budgetfor the Gilmore:}

^{Sales and production (# ofputters)                                                                       5,500}

^{Sales price perputter                                                                                            $270}

^{Variable materials cost perputter:}

^{Aluminum and weights (per putterhead) – 1,000 grams @ $0.055 pergram         $55}

^{Shaft (steel) – 1 per putter @$9.00                                                                     $9}

^{Grip – 1 per putter @$12.00                                                                             $12}

^{Variable labor costs (3 hours perputter @ $20 perhour)                                           $60}

^{Fixed costs per unit (based onbudgetedproduction)                                                 $70}

^{Upon seeing these figures, Blake wondered if there was away to increase his company’s profit from the Gilmoreputter.}

^{Blake had two ideas for further changes in the coming year(these changes are not reflected in the budget above):}

^{1)   increase theselling price to $295 per putter, and}

^{2)   rent a new millingmachine.}

^{The milling machine rental would cost Blake $65,000 infixed costs for the year, but he expected the new machine to reducethe labor time associated with making each putter. He also expectedthe new machine to reduce materials waste – although each finishedputter head weighs only 350 grams, the production process usingexisting equipment involves 650 grams waste (1,000 grams – 350grams) of aircraft-quality aluminum and tungsten.}

^{Blake implemented both of his ideas and actual results forthe year were as follows:}

^{Sales and production (# ofputters)                                                                       4,950}

^{Sales price perputter                                                                                            $295}

^{Materials cost perputter:}

^{Aluminum and weights (for putterhead) – 600 grams @ $0.07 pergram             $42}

^{Shaft (steel) – 1 perputter                                                                                   $9}

^{Grip – 1 perputter                                                                                            $14}

^{Labor costs per putter (13,500total hours @ $20/hour for all puttersproduced)         $52}

^{Fixed costs (for theyear)                                                                                $440,000}

1. ^{Determine a) static budgeted profit based on the originalexpected sales volume, b) flexible budgeted profit based on theactual sales volume, and c) actual profit. Be sure your resultsinclude a line for revenue and a line for each costitem.}  
2. ^{For total profit, calculate the static budgetvariance, flexible budget variance, and sales-activity variance. Besure to indicate whether the variance is favorable or unfavorable.Explain what each of these profit variances represents. Bespecific.}  
3. ^{What would have been the effect on total profitof increasing the selling price to $295? Assume the smaller salesvolume was entirely due to the higher price. For this calculationof the effect of higher selling price, assume that cost behaviorfor fixed costs and variable cost per unit remained as specified inthe budget prepared before the end of theyear.}  
4. ^{Calculate and explain the variances that wouldhelp Blake assess whether renting the new milling machine reducedmaterial waste and labor time required to produce putters, andwhether renting the milling machine increased total profit duringthe year.}