The management of Solomon Modems, Inc. (SMI) 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 8,000 and 12,000 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 12,000 units.

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

SOLOMON MODEMS, INC. Flexible Budget Income Statements Cost per Static Flexible Budgets unit Budget 10,000 8,000 12,000 Volume Variance Number of units Sales revenue $ 130 1,300,000 Variable manufacturing costs: Materials Labor Overhead 50 35 7 9 500,000 350,000 70,000 90,000 290,000 Variable selling, general & administrative Contribution margin Fixed costs: Manufacturing rent 64,000 N L C a. Complete the following worksheet to prepare the appropriate flexible budgets. b. Calculate and show the flexible budget variances for the static budget versus the flexible budget at 12.000 units. c. Indicate whether each variance is favorable (F) or unfavorable (U). (Select "None" If there is no effect (i.e., zero variance).) SOLOMON MODEMS, INC. Flexible Budget Income Statements Cost per Static Flexible Budgets Budget 10,000 12,000 unit Volume Variance Number of units 8,000 Sales revenue 130 1300,000 500,000 350,000 70,000 90,000 290,000 Variable manufacturing costs: Materials Labor 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) 64,000 74,000 93,650 26,000 $ 32,350 $(25,650) $ 90,350