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Jasmin Sylvera $is$ the manufacturing production supervisor for Stuart Motor Works $(SMW),$ a company that manufactures electrical motors for industrial applications. Trying $to$ explain why she did not get the year$-$end bonus that she had expected, she told a friend, $Thisis$ the dumbest place I've ever worked. Last year the company set $up$ this budget assuming $it$ would sell $153,000$ units. Well, $it$ sold only $143,000.$ The company lost money and gave $me$ a bonus for not using $as$ much materials and labor $as$ was called for $in$ the budget. This year, the company has the same $153,000$ units goal and $it$ sells $163,000.$ The company$s$ making all kinds $of$ money. You$d$ think $Id$ get a big bonus. Instead, management tells $me$ I used more materials and labor than was budgeted. They said the company would have made a lot more money $ifId$ stayed within $my$ budget. I guess I'll have $to$ wait for another bad year before I get a bonus. Like I said, this $is$ the dumbest place I've ever worked.$$

$SMWs$ master budget and the actual results for the most recent year $of$ operating activity follow.

Master Budget Actual Results Variances Favorable $or$ Unfavorable

Number $of$ units $153,000163,00010,000$

Sales revenue $ $33,660,000$ $ $36,186,000$ $ $2,526,000$ Favorable

Variable manufacturing costs

Materials $(4,896,000)(5,399,000)503,000$ Unfavorable

Labor $(4,284,000)(4,483,000)199,000$ Unfavorable

Overhead $(2,142,000)(2,333,000)191,000$ Unfavorable

Variable selling, general, and administrative costs $(5,355,000)(5,552,000)197,000$ Unfavorable

Contribution margin $16,983,00018,419,0001,436,000$ Favorable

Fixed costs

Manufacturing overhead $(7,986,600)(7,896,000)90,600$ Favorable

Selling, general, and administrative costs $(7,108,000)(7,147,000)39,000$ Unfavorable

Net income $ $1,888,400$ $ $3,376,000$ $ $1,487,600$ Favorable

Required

$a.$ Did $SMW$ increase unit sales $by$ cutting prices $orby$ using some other strategy?

$c.$ Prepare a flexible budget and recalculate the budget variances.

$f.$ Assume the labor price variance $is$ unfavorable. Was the labor usage variance favorable $or$ unfavorable?

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