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 selis 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. Master Actual Budget Results Variances For U Number of units 253,890 263,800 10,000 Sales revenue $ 3,807,800 $ 4,062,5201 $ 255,520 F Variable manufacturing costs Materials (689,120) (631, 120) 22,000 U Labor (317,250) (325,750) 8,500 U Overhead (342,630) (359,830) 17,200 U Variable selling, general and administrative costs (482,220) (508,220) 26,000 U Contribution margin 2,055,780 2,237,600 181,820 F Fixed costs Manufacturing overhead (1,294,380) (1,292,380) 2,000 Selling, general and administrative costs (477,144) (467,844) 9,300 Net income $ 284, 256 5 477,376 $ 193, 120 F U 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).) Flexible Budget Actual Results Variances 263,800 263,800 4,062,520 $ Number of Units Sales revenue Variable manufacturing costs Materials Labor F (631,120) (325,750) (359,830) (508,220) 2.237,600 U U F Overhead Variable Selling, general & administrativo Contribution margin Fixed costs Manufacturing overhead Selling, general 8 administrative Not income 1,294,380 477,144 (1.292,380) (467,844) 477,376 $ F