John Richardson is the manufacturing production supervisor for Fanning 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 251,000 units. Well, it sold only 241,000. 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 251,000 units goal and it sells 261,000. 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." Fanning's master budget and the actual results for the most recent year of operating activity follow. Master Budget 251,000 Actual Results 261,000 Variances For U 10,000 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 $ 3,765,000 $ 4,019,400 $ 254,400 F (602,400) (624,400) 22,000 U (313,750) (322,250) 8,500 U (338,850) (356,050) 17,200 U (476,900) (502,900) 26,000 U 2,033,100 2,213,800 180,700 F (1,280,100) (471,880) $ 281,120 $ 473,120 (1,278,100) (462,580) 2,000 F 9,300 U $ 192,000 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 (i.e., zero variance).) Number of Units Sales revenue Flexible Budget Actual Results Variances 261,000 $ 4,019,400 Variable manufacturing costs Materials (624,400) Labor (322,250) Overhead (356,050) Variable Selling, general & administrative (502,900) 2,213,800 Contribution margin Fixed costs Manufacturing overhead (1,278,100) Selling, general & administrative (462,580) Net income $ 473,120