Corporate Uniforms Ltd machine sews monograms onto uniforms. In April, they expected to monogram 500 uniforms. At the end of the month, they found that they had actually monogrammed 660 uniforms.

Here is the data they used to produce their budget:

Budgeted production for April: 500 monogrammed uniforms

Materials: 1 plain uniform @ $25.00 per uniform 300 metres of thread @ $0.02 per metre

Labour: Each uniform requires 15 minutes of direct labour, that is, 0.25 hours

0.25 hours @ $25.00 per hour

Variable overhead: Maintenance 0.25 hours @ $4.60 per hour Electricity 0.25 hours @ $1.50 per hour

Fixed overhead: Insurance $1,200 per month Depreciation $200 per quarter

The accountant prepared a budget for April, as below, and at the beginning of May recorded the actual costs, as in the second column:

	Budget	Actual
Production (uniforms)	500	660
Materials	$15,500	$16,758
Labour	$3,125	$3,565
Variable overhead:
Maintenance	$575	$550
Electricity	$188	$221
	$763	$771
Fixed overhead:
Insurance	$1,200	$1,225
Depreciation	$200	$200
	$1,400	$1,425
Total production costs	$20,788	$22,519

Required:

(a) Calculate the static budget variances (insert into column 3 on the answer space below). (7 marks)

(b) Prepare a flexible budget (in column 4 on the answer space below). (7 marks)

(c) Calculate the flexible budget variances (in column 5 on the answer space below). (4 marks)

(d) Why is the flexible budget a better way to measure performance than the static budget? (2 marks)

	Static Budget	Actual	(a) Static Variances	(b) Flexible Budget	(c) Flexible Variances
Production (uniforms)	500	660
Materials	$15,500	$16,758
Labour	$3,125	$3,565
Variable overhead:
Maintenance	$575	$550
Power	$188	$221
	$763	$771
Fixed overhead:
Grounds keeping	$1,200	$1,225
Depreciation	$200	$200
	$1,400	$1,425
Total production costs	$20,788	$22,519