ATC 8-1 (Algo) Business Applications Case Static versus flexible budget varlances John Richardson is the manufacturing production supervisor for Zachary Tool Works, a company that manufactures hand tools for mechanics. Trying to explain why he did not get the year-end bonus that he had expected, he told his wife. "This is the dumbest place I've ever worked. Last year the company set up this budget assuming it would sell 253,800 units. Well, it sold only 243,800. The company lost money and gave me a bonus for not using as much materials and labor as was called for in the budget. This year, the company has the same 253.800 units goal and it sells 263,800. The company's making all kinds of money. You'd think I'd get this big fat bonus. Instead, management tells me I used more materials and labor than was budgeted. They said the company would have made a lot more money if I'd stayed within my budget. I guess I gotta wait for another bad year before I get a bonus. Like I said, this is the dumbest place I've ever worked." Zachary's master budget and the actual results for the most recent year of operating activity follow. Number of units Variable manufacturing costs Sales revenue Materials Labor Overhead Variable selling, general and administrative costs Contribution margin Fixed costs Manufacturing overhead Selling, general and administrative costs Net income Actual Results 263,800 Master Budget 253,800 Variances 10,000 For U $ 3,807,000 $ 4,062,520 $ 255,520 F (609,128) (631,120) 22,000 U (317,250) (325,750) 8,500 U (342,630) (359,830) 17,200 U (482,220) (508,220) 26,000 U 2,055,780 2,237,600 181,820 F (1,294,380) $ (477,144) 284,256 (1,292,380) (467,844) 2,000 F 9,300 U $ 477,376 $ 193,120 F Required c. Prepare a flexible budget and recompute the budget variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (l.e., zero varlance).)