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ANALYZE, THINK, COMMUNICATE ATC 8-1 Business Applications Case Static versus flexible budget variances David Catrow is the manufacturing production supervisor for Faraday Motor Works (FMW), a com- pany that manufactures electrical motors for industrial applications. Trying to explain why he did not get the year-end bonus that he had expected, he told his wife, "This is the dumbest place I've ever worked. Last year the company set up this budget assuming it would sell 150,000 units. Well, it sold only 140,000. The company lost money and gave me a bonus for not using as much materials and la- bor as was called for in the budget. This year, the company has the same 150,000 units goal and it sells 160,000. The company's making all kinds of money. You'd think l'd get this big fat 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 if I'd stayed within my budget. I guess I gotta wait for another bad year before I get a bonus. Like I said, this is the dumbest place I've ever worked." FMW's master budget and the actual results for the most recent year of operating activity follow Master Bu Actual Results Variances For U 150 160,000 10,000 Sales revenue $33,000,000 $35,520,000 $2,520,000 F Variable manufacturing costs 4.800,000 (5,300 (4,200 2,100, 500,000U 200,000 U 190,000 U (4,400,000) (2,290,000) Overhead Variable selling, general, and admin. costs (5,250,000) (5.450,000) 200,000 U Contribution margin 16,650,000 18,080,000 430,000 Fixed costs Manufacturing overhead Selling, general, and admin. costs (7,830,000) (6,980,000) 7.015,000) (7,751,000) 79,000 F 35,000 U 3,314.000 $1,474,000F Net income $ 1.840,000