Flexible Budgeting Question 2 You have been provided with the following operating statement, which represents an attempt to compare the actual performance for the quarter which has just ended with the budget: Number of units sold (000s) Budget 640 Actual Variance 720 80 000 1024 000 1071 000 47 168 240 32 144 288 36 468 94 440 100 28 6 Sales Cost of sales ( all variable): Materials Labour Overheads Fixed labour cost Selling & distribution costs: Fixed Variable Administration costs: Fixed Variable Net profit 72 144 83 153 (11) (9) 184 48 548 36 176 54 560 43 8 (6) (12) Z Required: a) Using a flexible budgeting approach, redraft the operating statement so as to provide a more realistic indication of the variances and comment briefly on the possible reasons (other than inflation) why they have occurred. b) Explain why the original operating statement was of little use to management c) Discuss the problems associated with the forecasting of figures which are to be used in flexible budgeting