Abulafia Srl manufactures tyres for the Formula 1 motor racing circuit. For August 2015 Abulafia budgeted to manufacture and sell 3000 tyres at a variable cost of €74 per tyre and a total fixed cost of €54 000. The budgeted selling price was €110 per tyre. Actual results in August 2015 were 2800 tyres manufactured and sold at a selling price of €112 per tyre. The actual total variable costs were €229 600, and the actual total fixed costs were €50 000.

Required

1. Prepare a performance report (akin to Exhibit 15.3) that uses a flexible budget and a static budget.

2. Comment on the results in requirement 1.

Exhibit 15.3 presents the Level 2 flexible-budget-based variance analysis for Sofiya. Note that the €237 000 unfavourable static-budget variance of operating profit is now split into two categories: a flexible-budget variance and a sales-volume variance.

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Static-budget variance Level 1 €237 000 U Flexible-budget variance Level 2 Sales-volume variance €75000 U €162 000 U