A company manufactures and sells one product. At the end of the year, the managers were disappointed that the profit was lower than expected, despite the fact that sales had been higher than expected. The details are:-

BUDGET ACTUAL

Sales 2 000 units 40 000 2 500 units 45 000

Material 1 000 kg 5 000 1 350 kg 6 075

Labour 2 000 hours 10 000 2 400 hours 12 600

Fixed overheads 15 000 18 000

Total costs 30 000 36 675

Profit 10 000 8 325

1. Prepare a report that will explain the factors that have decreased the profit from the expected 10 000 to 8 325.

(b) Discuss the process that is often used to prepare the Annual Budget of a company that manufactures and sells a large number of different products.