Dunlop Company has provided the following 2018 data:

Budget
Sales $400,000
Variable product costs 163,000
Variable selling expense 40,000
Other variable expenses 3,000
Fixed product costs 10,500
Fixed selling expense 20,000
Other fixed expenses 1,600
Interest expense 650

Variances
Sales 3,200 U
Variable product costs 2,600 F
Variable selling expense 1,250 U
Other variable expenses 600 U
Fixed product costs 110 F
Fixed selling expense 195 F
Other fixed expenses 75 U
Interest expense 50 F

Required

a. Prepare a budgeted and actual income statement for internal use. Separate operating income from net income in the statements.
b. Calculate variances and identify them as favorable (F) or unfavorable (U) by comparing the budgeted and actual amounts determined.