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 report was prepared from the companys accounting records:

	Actual		Budget		Variance
Units sold	14,500		15,000		500	Unfavorable
Sales revenue	$2,972,500		$3,000,000		$27,500	Unfavorable
Cost of goods sold	2,051,000		2,075,000		24,000	Favorable
Gross margin	921,500		925,000		3,500	Unfavorable
Selling and administrative expenses	288,625		290,000		1,375	Favorable
Operating income	$632,875		$635,000		$2,125	Unfavorable

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	10 yards		$5 per yard		$50
Direct labor	5 hours		$8 per DLH		40
Variable overhead	5 hours		$7 per DLH		35
					$125

Actual variable costs incurred during the year were as follows.

Direct materials purchased and used (133,400 yards @ $5.25)	$700,350
Direct labor cost incurred (79,750 DLH @ $7.8)	622,050
Variable overhead costs incurred	533,600
	$1,856,000 Prepare a performance report that isolates Pressure Reducers flexible budget and sales volume variances.

Flexible Budget Variance Actual Results Flexible Budget Sales Volume Variance Static Budget Unit sales