Liloths Company deals in authentic African bitters. For the financial year 2019, the cost accountant provided the following budgeted information. At full capacity (100% level of activity), the company produces an output of 20,000 units.

Level of Activity

70% 80% 90%

Direct Material (GHc) 88900 101600 114300

Direct labour (GHc) 224000 256000 288000

Production Overheads (GHc) 152500 160000 167500

Administrative Overheads (GHc) 85000 85000 85000

Depreciation (GHc) 20000 20000 20000

During June, the companys activity level was anticipated to be around 85% activity level

1. Prepare a flexible budget for the anticipated activity level.
2. Explain the relevance of an activity variance for expenses for management decision making purposes