Firstline Ltd is concerned about the uncertain nature of its market for the upcoming year and has prepared budgeted results based on 90%, 100% and 105% activity as follows:

90%100%105%

Output450005000052500

$$$

Revenue1 350 0001 500 0001 575 000

Less:

Materials Cost337 500375 000393 750

Labour Cost 440 000485 000507 500

Production Overhead Cost 217 500235 000243 750

Administrative Cost 120 000130 000135 000

Selling & Distribution Cost 70 000 75 000 77 500

1 185 0001 300 0001 357 500

Net Profit165 000200 000217 500

Only 37 500 units have been sold with the following results

$$

Revenue1 075 000

Less:Expenses

Material Costs311 750

Labour Cost 351 500

Production overhead Cost 171 250

Administration cost 117 500

Selling and distribution costs 66 500

1 018 500

Net Profit 56 500

i. The budgeted selling price is $30 per unit

ii. All production is sold

iii. The fixed element of the budgeted costs will remain unchanged at all levels of production

Required:

A. create statement for the year showing the flexible budget at the actual level of activity

B. Examine the variances of $20 000 or greater, analyzing the possible reasons for such variances.

C. What are the differences between a fixed budget and a flexible budget?