Pressure Reducers, Inc., produces and sells lumbar support cushions for office chairs using a special foam that molds to a persons back. Since all products are made to order, the only inventory the company maintains is raw materials. Thus, all costs of production are recognized in the period in which they are incurred. The following annual performance report was prepared from the companys accounting records:
					Actual		Budget		Variance
	Units sold				14,800		15,000		200 U
	Sales revenue				$3,034,000		$3,000,000		$34,000 F
	Cost of goods sold				2,064,790		2,075,000		(10,210) F
	Gross margin				969,210		925,000		44,210 F
	Selling and administrative expenses				288,625		290,000		(1,375) F
	Operating income				$680,585		$635,000		$45,585 F
The following fixed costs are included in these amounts.
					Actual		Budget
	Cost of goods sold				$195,000		$200,000
	Selling and administrative expenses				140,000		140,000
Hank Martinez, Pressure Reducers CFO, used the following standard cost card in preparing the budget and thought he had done a good job estimating production and sales. He wonders why the variable cost of goods sold deviated from that budget.
					Standard Quantity per Unit		Standard Price		Total Cost per Unit
	Direct material				5 yards		$10 per yard		$50
	Direct labor				2.5 hours		$16 per DLH		40
	Variable overhead				2.5 hours		$14 per DLH		35
									$125
Actual variable costs incurred during the year were as follows.
	Direct material purchased and used (78,400 yards @ $9.80)								$768,320
	Direct labor cost incurred (37,260 DLH @ $15.50)								577,530
	Variable overhead costs incurred								523,940
									$1,869,790