Anchorvale Electronics Limited manufactures and distributes transistors for electronics firms. In December 2014, Anchorvale required a bank loan and the bank manager insisted that Tracy Miller, Anchorvale€™s president, prepare a budget for 2015. In January 2016, Anchorvale needed an additional loan and Miller asked her accountant to prepare a budget for 2016 to show the bank manager. Miller was concerned because Anchorvale€™s profit for 2015 was considerably less than the 2015 budget figure given to the bank and she knew that the bank manager would want to know why. As a first step in analyzing the differences, Miller copied the 2015 actual figures onto the 2015 bank budget form shown below and prepared the standard cost details shown below the budget form:

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Required:
1. Redraft the budget to show the 2015 static budget, flexible budget, actual, and variance from the flexible budget, with contribution margins separately identified. Note : See the standard cost details above.
2. Prepare a quantitative analysis to demonstrate to management the main causes for the variance from the flexible budget, as a basis both for taking corrective action and for explaining the variance from the static budget to the bank manager.
3. If expected 2016 operating results are similar to 2015, explain to the bank manager how much of the loan you would be able to repay from 2016 earnings. (Assume no changes in accounts receivable and accounts payable.)
4. If competition became intense in 2016 and Anchorvale was operating well below capacity at 85,000 units, explain with calculations the minimum bid you would make on an order for 10,000 units.
5. What changes to the management accounting and reporting system for Anchorvale Electronics would you propose?

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ANCHORVALE ELECTRONICS LIMITED 2015 Budget Prepared for Bank Loan Dollars in (o0os) Static Budget Actual Variance 105,000 $ 2,520 5000 U S 230 U Seles-units... Seles-dollars. Cost of sales: 10.000 $ 2750 Materials. 440 421 19 F Lahour. Overhead Fixed factory overhead. 880 845 35 F 220 205 15 F 300 303 1840 L74 66 F Gross profit... Seling expenses Variable... Fixed Administration-fixed. 910 746 164 U 220 209 11F 100 102 2U 200 197 3F 520 508 12 F Profit before income tax.. Income tax (40% of profit before tax).. Net eamings.... 390 238 152 U 156 95 61F 234 143 91U Standard Costs on Which Budget Is Based Standard per Unit Seles price... Variable costs: Direct materlal Labour, V hour at $16 per hour Overhead, V haur at $4 per hour Fiwed factory overheadt Depreciation... Other... $25 $ 4 $200,000 100000 S300,000 Standard output 100,000 units at % hour = 50,000 direct lebour-hours (S300,000 + 50,000) x ½ hour Selling expenses Variable Fived, $100,000 + 100,000 units Administration: Fixed, $200,000 + 100.000 units.. S22 Standard costs were used for preparing bids, whereas the cost accounting system recorded actual costs. ది ద 3.