A manufacturing business planned to produce 60,000 units of output in the month of April.

However, due to a problem with production equipment only 50,000 units were produced.

The statement below shows details of budgeted costs and actual costs incurred in April:

Budgeted Monthly Units and Costs Actual Units and Costs April

Units 60,000 50,000

Overhead Costs Total Fixed costs () Variable CostsPer Unit() Total Costs ()

Supervision 74,000 0.00 71,000

Materials handling costs 0 2.25 117,500

National insurance costs 11,000 0.30 27,250

Inspection costs 22,000 0.60 50,500

Specialist supplies 7,500 0.15 17,250

Power for machinery 0 0.35 15,000

Required:

(a) Draw up a statement for April showing:

i. The original Budget

ii. A flexible budget for the month

iii. The actual costs

iv. The variance analysis for each cost item

(b) Explain the advantages of using flexible budgeting to provide more useful information for controlling costs.

(c) Discuss the behavioural issues associated with the use of budgeting to support planning and control activities in businesses.