The management of Vernon Modems, Inc. (VMI) 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 6,000 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 6,000 units.

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

Volume Variance $300,000 F 80,000 (U 50,000 (U VERNON MODEMS, INC. Flexible Budget Income Statements Cost per Static Flexible Budgets unit Budget Number of units 4,000 3,000 6,000 Sales revenue $ 150 $ 600,000 $450,000 $900,000 Variable manufacturing costs: Materials 40 160,000 120,000 240,000 Labor 100,000 75,000 150,000 Overhead 20,000 15,000 30,000 Variable selling, general & administrative 28,000 Contribution margin 292,000 Fixed costs: Manufacturing rent 67,000 Depreciation on manufacturing equipment 77,000 Selling, general & administrative expenses 98,300 Depreciation on administrative equipment 29,000 Net income (loss) $ 20,700 $(52,300) $ 166,700