The management of Magnificent Modems, Inc. (MMI), is uncertain as to the volume of sales that will exist in 2014. The president of the company asked the chief accountant to flexible budget income statements assuming that sales activity amounts to 3,000 and 6,000 units. The static budget is shown in the form below.

Required

Complete the following worksheet to prepare the appropriate flexible budgets.

Calculate and show the flexible budget variances for the static budget versus the flexible budget at 6,000 units.

Indicate whether each variance is favorable or unfavorable.

Flexible Budget Income Statements

Static Budget Flexible Budget Flexible Budget

Number of units 5,000 3,000 6,000

Cost per unit

Sales revenue $120 600,000

Variable manuf. Cost

Materials 40 200,000

Labor 25 125,000

Overhead 4 20,000

Variable SG&A 6 30,000

Contribution margin 225,000

Fixed cost

Manufacturing rent 50,000

Dep.on manu. Equip. 60,000

SG&A expenses 71,950

Dep. On admin. Equip. 12,000

Net income (loss) $31,050 $(58,950) $76,050