Montevideo Manufacturing, Inc. produces a single type of small motor. The bookkeeper who does not have an in-depth understanding of accounting principles prepared the following performance report with the help of the production manager. In a conversation with the sales manager, the production manager was overheard saying, "You sales guys really messed up our May performance, and it is only because production did such a great job controlling costs that we aren't in even worse shape." Montevideo Manufacturing Inc. Performance Report For the Month Ended May 31,2016 Flexible Budget Actual Results Master Budget Variane Per Unit (45,000 units) (50,000 units) 6 7 Sales 8 Less variable expenses: 9 Direct materials 10 Direct labor 25.00$1,125,000 $1,250,000 $125,000U 4.50 3.75 2.25 $212,500 175,750 110,250 225,000 $12,500 187,500 112,500 1,750 F 2,250 F 11 Variable factory overhead 12 Variable selling and administrative expense 13 Total variable expense 14 Contribution margin 15 Less fixed expenses: 16 Fixed factory overhead expense 17 Fixed selling and administrative expense 18 Total fixed expense 19 Income from operations $600000 $31000 F $100,000 150.000 $250,000 $5,000 F $95,000 160.000 $255,000 301000 $100,000 150,000 10.0O0U $250,000 Step 1 - Do you agree with the production manager that the manufacturing area did a good job of controlling costs? Your answer should be at least 250 words in length. You should also reference information already learned in our studies. Step 2 - Complete the following... 1. Prepare a flexible budget for Montevideo Manufacturing's expenses at the following activity levels: 45,000 units, 50,000 units and 55,000 units. 2. Prepare a revised performance report, using the most appropriate flexible budget from #1. 3. With this information, what is your response to the production manager's claim? Step 3 - Assume that you have just been hired as the new accountant. You observe that the production manager is about to receive a large bonus based on the favorable materials, labor, and factory overhead variances indicated in the flexible budget prepared by the bookkeeper. Using the IMA Statement of Ethical Professional Practice as your guide, what standards, if any, apply to your responsibilities in this matter? Your answer should be at least 250 words in length.