Brabham Enterprises manufactures tires for the Formula I motor racing circuit. For August 2017, it budgeted to manufacture and sell 3,000 tires at a variable cost of \($74\) per tire and total fixed costs of \($54,000.\) The budgeted selling price was \($110\) per tire. Actual results in August 2017 were 2,800 tires manufactured and sold at a selling price of \($112\) per tire. The actual total variable costs were \($229,600,\) and the actual total fixed costs were /($50,000\).

1. Prepare a performance report (akin to Exhibit 7-2, page 274) that uses a flexible budget and a static budget.

2. Comment on the results in requirement 1.

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EXHIBIT 7-2 Level 2 Analysis Level 2 Flexible-Budget-Based Variance Analysis for Webb Company for April 2017 Actual Results (1) Flexible-Budget Variances (2)=(1)-(3) Sales-Volume Flexible Budget Variances (3) (4) = (3)-(5) Static Budget (5) Units sold 10,000 0 10,000 2,000 U 12,000 Revenues $1,250,000 $50,000 F $1,200,000 $240,000 U $1,440,000 Variable costs Direct materials 621,600 21,600 U 600,000 120,000 F 720,000 Direct manufacturing labor 198,000 38,000 U 160,000 32,000 F 192,000 Variable manufacturing overhead 130,500 10,500 U 120,000 24,000 F 144,000 Total variable costs 950,100 70,100 U 880,000 176,000 F 1,056,000 Contribution margin 299,900 20,100 U 320,000 64,000 U 384,000 Fixed manufacturing costs 285,000 9,000 U 276,000 276,000 Operating income $ 14,900 $29,100 U $ 44,000 $ 64,000 U $ 108,000 Level 2 $29,100 U Flexible-budget variance $ 64,000 U Sales-volume variance Level 1 $93,100 U Static-budget variance aF = favorable effect on operating income; U = unfavorable effect on operating income.