Question 5 (14 marks) The Mystic River Flyfishing Company designs, manufactures and retails fly-rods to fishing enthusiasts around the world via its website. Mystic River is known for its advanced materials, innovative designs and lifetime warranties against breakage. Mystic River produces three fly-rod designs that are targeted to fly fishers of different abilities: beginning (Smooth 100), intermediate (Crisp 200) and advanced (Rapid 300). The company prepared a fixed/master budget for the year 2018 shown below, assuming production and sales of 36,000 units. This level of production represents 80% of the company's total production capacity. Sales $1.500.000 Cost of goods sold Di materials Sex Direct Labor Indirect materials (variable) 18.000 Indirect laborales 23.00 Depreciate 216,000 Salaries Unities is fixed) Maintenance (40variable) 39.600 1479.00 Grosspulle Operating expenses $54.000 Advertising (ned) 72.000 Rem Total operating expenses Income from operations However, the senior manager of the company found the company's profitability was not as good as expected. At the end of the year 2018, the actual sales volume was 38,400 units, higher than budgeted of 36,000 units, but the income from operations was much lower than budgeted at the beginning of the year. The company's actual activity for the year follows. Sales (38000 Cost of good old Det materials 5676.00 Dhe 385.300 Indicel materials (variable) 23.560 Indiet laborable) 27.000 Depreciation 216.000 110,400 tilities (fined Maintenance (407 variable) 28.400 1.554.MO Gross profit $299,640 Commissions 566.000 Advertising lined) 79,00 Wages variable Real Total operating expense 211.200 Income from operation Required: c. With higher than expected number of units sold, income from operations dropped dramatically, the senior manager of The Mystic River Flyfishing Company wants to find out what went wrong. He asks you, an experienced senior management accountant to prepare a flexible budget performance report that shows variable costs per unit, total fixed costs using the contribution margin format. (11 marks) Based on your answer in (1) above, please explain which top three reasons are most likely to reduce the income form operation