(25 Question 2 Marks) The following budgeted figures have been taken from the cost records of Ace Ltd: 9 000 Production units Capacity level 12 000 100% 75% R 1 035 000 Sales Direct material (@ R5 per kg) Direct labour (@ R20 per hour) Factory overheads Selling and administrative expenses R 1 380 000 240 000 300 000 180 000 225 000 300 000 330 000 180 000 192 000 Normal capacity is equal to 12 000 units. As a result of the poor economic conditions the budget for February 2015 has been set at 80% of normal capacity. The company uses the The following budgeted figures have been taken from the cost records of Ace Led Question 2 Marks) Production units Capacity level Sales Direct material (per kg) Direct labour (R20 per hour) Factory overheads Selling and administrative expenses 9 000 12000 75% 10096 B R 1 035 000 1380 000 180 000 240 000 225 000 300 000 300 000 330 000 180 000 192 000 Normal capacity is equal to 12 000 units. As a result of the poor economic conditions the budget for February 2015 has been set at 80% of normal capacity. The company uses the absorption costing method for internal reporting purposes. The following variance report for February 2015 has been presented to management of the production department: Variance Fixed Budget 10 000 Production units Sales units Actual Results 9000 9.000 10.000 R 1 150 000 1 056 700 188 100 200 000 Sales Material Direct labour Factory overhead Fixed Selling and administrative expenses Net profit 250 000 300 000 180 000 220 000 236 250 310 600 208 200 93 300 (a) 11 900 (1) 13 750 (1) 10 600 () 28 200 (u) 106 450 (u) 113 550 Required: a) Discuss how a flexible budget can be used when exercising cost control. (5) b) Critically discuss the format and content of the variance report for February 2015 as presented to the department Prepare an alternative variance report for the department that would be more meaningful to management