The management of Franklin Modems, Inc. (FMI) 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 5,000 and 7,000 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 7,000 units.

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

   FRANKLIN MODEMS, INC.
   Flexible Budget Income Statements
   	Cost per unit	Static Budget	Flexible Budgets		Volume Variance
   Number of units		6,000	5,000	7,000
   Sales revenue	$120	$720,000
   Variable manufacturing costs:
   Materials	40	240,000
   Labor	25	150,000
   Overhead	5	30,000
   Variable selling, general & administrative	7	42,000
   Contribution margin		258,000
   Fixed costs:
   Manufacturing rent		57,000
   Depreciation on manufacturing equipment		67,000
   Selling, general & administrative expenses		82,800
   Depreciation on administrative equipment		19,000
   Net income (loss)		$32,200	$(10,800)	$75,200