Examine Nike’s income statement shown in condensed form as “Results of Operations” for fiscal years 2009, 2010, and 2011 in Appendix C. Suppose that Nike used results for 2010 to set standards for 2011. Assume that cost of sales is a variable cost and that selling and administrative costs are fixed costs and that income is simply revenue - cost of sales - selling and administrative costs. Prepare a static budget based on the assumption that sales and cost of sales (variable costs) will grow by 10%.

Prepare a flexible budget based on the sales level achieved for 2011. Using the actual results for 2011, determine the static-budget variances, the sales-activity variances, and the flexible-budget variances for sales, cost of sales, selling and administrative costs, and income.