Cocomill produces dessicated coconut packed in bags of 1 kg. In times of normal season, the company can manufacture 5,500 units per quarter. The following table summarizes the current quarters budget:

Variable costs per unit $65

Fixed costs $ 150,000

During the past year, because of drought, production dwindles to 4,300 units per quarter.

Actual production and sales for Quarter 2 were 4,300 units. Total production costs were $455,000 of which $299,400 were variable costs.

The practice of the organization is to prepare a static budget, based on the normal season. However, a new accountant is suggesting a flexible budget using the 4,300 units.

1. Prepare the production budget based on the normal season.
2. Prepare the production budget based on the drought season.
3. What is the variance in a and in b.?
4. What can you recommend to the organization?