Given data,Standard price per unit$ 38Standard cost dataDirect materials $ 8.80Direct labor 5.00Variable manufacturing overhead 4.20Fixed manufacturing overhead 10.00Variable selling and administrative expense 2.20Fixed selling and administrative expense 4.00Vernon Manufacturing Company established the following standard price and cost data. Vernon planned to produce and sell 2,300 units. Actual production and sales amounted to 2,500 units. Required:a. Prepare the pro forma income statement in contribution format that would appear in a master budget.Contribution Margin = Sales – Variable CostsTotal contribution Margin = 2500 × (38 – 8.8 – 5 – 4.2 – 2.2) = $70,000Fixed Cost = Fixed manufacturing overhead + Fixed selling and administrative expense = $10,000 + $4,000 = $14,000Operating income = Total contribution Margin - Fixed Costs = $70,000 - $14,000 = $56,000The pro forma income statement in contribution format that would appear in a master budget is:Master Budget Pro forma income statement in contribution Format Sales (2500 × 38)$95,000Variable Cost Direct materials (2500 × 8.8)22,000Direct labor (2500 × 5)12,500Variable manufacturing overhead (2500 × 4.2)10,500Variable selling and administrative expense (2500 × 2.2)5,500Total variable costs$50,000Contribution margin$45,000Fixed manufacturing overhead10,000Fixed selling and administrative expense4,000Total fixed costs14,000Operating income$31,000b. Prepare the pro forma income statement in contribution format that would appear in a flexible budget.Flexible budgetSales (2500 × 38)$95,000Variable costsDirect materials (2500 × 8.8)22,000Direct labor (2500 × 5)12,500Variable manufacturing overhead (2500 × 4.2)10,500Variable selling and administrative expense (2500 × 2.2)5,500Total variable costs$50,000Contribution margin$45,000Fixed costsFlexible manufacturing overhead$11,500Fixed selling and administrative expense$3,500Total fixed costs$15,000Operating income$30,000Therefore, the pro forma income statement in contribution format that would appear in a flexible budget is:Flexible budgetPro forma income statement in contribution formatSales (2500 × 38)$95,000Variable costsDirect materials (2500 × 8.8)22,000Direct labor (2500 × 5)12,500Variable manufacturing overhead (2500 × 4.2)10,500Variable selling and administrative expense (2500 × 2.2)5,500Total variable costs$50,000Contribution margin$45,000Fixed costsFlexible manufacturing overhead11,500Flexible selling and administrative expense3,500Total fixed costs$15,000Operating income$30,000