ASSIGNMENT BY MY LECTURER

Francis plc is a manufacturing company. It assesses managerial performance by comparing actual with budgeted results. Due to staff shortages in the accounting department, figures for January 2009 budget reports have been prepared by a trainee. A copy of the budget report for January 2009 for the appliances division is given below:

Note: F = favourable variance, A = adverse variance.

The manager of the appliances division does not believe that the variances calculated give a fair assessment of her division's performance. She thinks that the budget figures are inappropriate and that a flexed budget should be used to calculate the variances. To assist in preparing a flexed budget she provides the following information:

There is known to be a 'step up' of 50,000 in the fixed element of this cost for volumes in excess of 4,500 units.

Required:

a. Prepare a flexed budget for the appliances division for January 2009 and recalculate the budget variances.

b.Briefly discuss why flexible budgets are more effective than fixed budgets for the purpose of budgetary control.