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Fabulous Footwear is a store that specializes in shoes targeted to people who lead an active life. The Chicago mega-store has a special area called the Locker Room that is dedicated to shoes for various sports and activities like jogging, tennis, and basketball. Budgeted profit for the Locker Room is computed using an average cost of $44 per pair of shoes and an average selling price of $80 per pair of shoes.

The manager of the Locker Room has considerable discretion in setting prices and in staffing the area. Typically, the Locker Room is staffed for 700 hours per month at a budgeted wage rate of $5 per hour. In addition to this base wage, sales staff receives a commission equal to 5% of revenues. Moreover, staffing levels are not expected to change in response to small (defined as 10%) changes in shoe sales. For October, the Locker Room had budgeted sales of 4,000 pairs of shoes and 700 staffing hours.

Actual results for October were as follows:

Pairs of shoes sold	4,250
Revenue	$323,000
Cost of shoes	170,000
Labor-commissions	16,150
Labor-base wages	3,000	(the actual base wage was $5 per hour)
Profit	$133,850

Submit responses to the following

1. What is the Locker Rooms total profit variance for October? Be sure to indicate whether the variance is favorable or unfavorable. (5 points. Show calculations for partial credit.)
2. Create the Locker Rooms flexible budget for October (calculate Revenue, Cost of shoes, Labor-commissions, Labor-base wages, and Profit). (5 points)
3. Calculate the following variances for the Locker Room. Be sure to indicate whether the variance is favorable or unfavorable.
   • total sales volume variance (2 points),
   • sales price variance (2 points),
   • flexible budget shoe cost variance (2 points),
   • flexible budget labor cost variance for commissions (2 points), and
   • flexible budget labor cost variance for base wages (2 points)?
4. Interpret the set of variances you calculated in part (C). In particular, explain (in one sentence or less) the relationship between each of the following pairs of variances:
   • The flexible budget shoe cost variance and the sales price variance. (2 points)
   • The sales price variance and the sales volume variance. (2 points)
   • The sales price variance and the flexible budget variance for labor commissions. (2 points)

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