Earth Trilogy Ltd has prepared the following fixed budget performance report.

Required

(a) Prepare a flexible budget performance report for the actual level of activity.

(b) Comment on the significant variances in the flexible budget performance report and explain why this is a better method of measuring variances than a fixed budget performance report such as the one above.

(c) If the number of units produced is less than budget, what disadvantages does a flexible budget performance report have?

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Units produced Variable costs: Direct materials Direct labour Indirect materials Indirect labour Electricity and gas Total variable costs Fixed costs: Supervisor's salary Rent Insurance Maintenance Depreciation EARTH TRILOGY LTD Fixed budget performance report for the year ended 30 June 2025 Budget Actual Variance 50 000 55 000 5 000 F $ 700 000 $ 824 000 300 000 390 000 60 000 61 600 $ 124 000 U 90 000 U U 1 600 40 000 50 400 10 400 U 75 000 61 600 13 400 F 1 175 000 1 387 600 212 600 U 88 000 120 000 84 000 120 000 4 000 F 0 23 000 24 000 1.000 U 15 000 18 000 3 000 U 18 000 18 000 0 264 000 264 000 0 Total fixed costs Total manufacturing costs U indicates an unfavourable variance. F indicates a favourable variance. $ 1 439 000 $ 1 651 600 $212 600 U The variable cost rates per unit for Earth Trilogy Ltd are as follows.