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Problem 1: Relax Inc. (Cost Center Performance Evaluation) Relax Inc. produces massage chairs. The manufacturing division of Relax Inc. is classified as a cost center. For performance evaluation of the manufacturing division, Relax Inc. has specified the following standards for one chair: Leather 5 sq ft per chair @ $1/sq ft Direct Labor 1.5 hrs per chair @ $12/hr OH Rate $6/Direct Labor hour For a given month, the manufacturing division incurs the following costs if it produces 1,500 chairs: OH Leather $8,000 Direct Labor $28,500 $13,500 a) For each cost above, compute the variance and indicate if the variance is favorable or unfavorable. Analyze overall variance and indicate if it is favorable or unfavorable. Compute the actual cost per chair and compare to standard cost per chair. (3 points) b) In analyzing the performance of the manufacturing division, Relax Inc. assumes all costs to be variable. However, the manager of the manufacturing division knows that, while the leather and direct labor costs are entirely variable, OH costs for the division are entirely fixed. For the month above, compute the costs incurred by the manufacturing division if the manufacturing division produced 1,800 chairs instead of 1,500 and compare them to the standard costs. Will the manager prefer to produce 1,800 chairs? (3 points)

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