John Richardson is the manufacturing production supervisor for Torsion Tool Works (TTW), 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 250,000 units. Well, it sold only 240,000. 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 250,000 units goal and it sells 260,000. 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."

TTW's master budget and the actual results for the most recent year of operating activity follow.

Master Budget Actual Results Variances F or U Number of units 250,000 260,000 10,000 Sales revenue $3,750,000 $3,950,000 $200,000 F Variable manufacturing costs Materials (600,000) (622,200) 22,200 Labor (312,500) (321,000) 8,500 Overhead (337,500) (354,700) 17,200 Variable selling, general, and admin. costs (475,000) (501,300) 26,300 Contribution margin 2,025,000 2,150,800 125,800 ncn ncccc Fixed costs Manufacturing overhead (1,275,000) (1,273,100) 1,900 Selling, general, and admin. costs (470,000) (479,300) 9,300 Net income $ 280,000 $ 398,400 $118,400