The board of a shoe manufacturer, Sole, is reviewing the first draft of the budget for 2019, drawn up by the management accountant. The coinpany operates in a very price competitive market with limited prospects for growth. General inflation is running at 2%. Head office costs are charged at a rate of 10% of sales.

REQUIRED:

Examine the budget in Table 12.15 and consider what questions you would advise the board to ask the management accountant.

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Table 12.15 Sole: a comparison of 2018 actuals to 2019 budget 2019 budget 2018 actual Number of pairs of shoes 85,400 89,670 Average price per shoe 35.00 36.40 Revenue 2,989,000 3,263,988 Material cost 1,281,000 1,345,050 Direct labour cost 683,200 696,864 Factory rent 164,300 164,300 Factory utilities 65,800 69,090 Factory administration costs. 87,290 78,561 Marketing costs 175,400 175,400 Selling costs 145,976 153,275 Head office charge 298,900 298,900