The management accountant prepared the following performance report for a company's first year of operations:

Budget Actual Variance

Sales $250,000 $270,000

Cost of Goods Sold 160,000 175,000

Selling Expenses 30,000 40,000

Administrative Expenses 40,000 45,000 _______

Operating Income $20,000 $10,000

Required: (10 points)

1. Compute variances for each line item on the income statement. Also indicate if the variances are Favorable (F) or Unfavorable (U).

2. Assuming the use of the Management-by-Exception (MBE) approach, indicate which variances should be investigated further.