The management of Adams Modems, Inc. (AMI) is uncertain as to the volume of sales that will exist in Year 1. The president of the company asked the chief accountant to prepare flexible budget income statements assuming that sales activity amounts to 3,000 and 5,000 units. The static budget is shown in the following form.

Required

1. Complete the following worksheet to prepare the appropriate flexible budgets.

2. Calculate and show the flexible budget variances for the static budget versus the flexible budget at 5,000 units.

3. Indicate whether each variance is favorable (F) or unfavorable (U). (Select "None" if there is no effect (i.e., zero variance).)

ADAMS MODEMS, INC. Flexible Budget Income Statements Cost per Static Flexible Budgets unit Budget 4,000 3,000 5,000 $ 110 $ 440,000 Volume Variance Number of units Sales revenue Variable manufacturing costs: Materials 30 15 Labor 120,000 60,000 12,000 20,000 228,000 Overhead Variable selling, general & administrative Contribution margin Fixed costs: Manufacturing rent Depreciation on manufacturing equipment Selling, general & administrative expenses Depreciation on administrative equipment Net income (loss) 51,000 61,000 73,500 13,000 $ 29,500 $(27,500) $ 86,500