Mens Clothing Company produces mens ties since 1995. In order to reasonably plan and closely control their manufacturing costs, they use the budgeting system. The following budgeted and actual amounts are released to top management for 2020 and they asked you, a cost accountant, to prepare a performance budget report so that they can analyze all type of variances including both favourable and unfavourable.

Cost	Budget at 5,000 Units	Actual Amounts at 4,800 Units
Direct materials	$45,000	$51,000
Direct labour	52,000	48,000
Equipment depreciation	7,000	7,000
Indirect labour	3,600	4,300
Indirect materials	5,000	4,700
Rent and insurance	13,000	13,000

Instructions:

1. Prepare a flexible budget report for Mens Clothing Company for the year. When creating a flexible budget, ensure to provide full calculation steps. (15 marks)

Cost	Budgeted costs at 5,000 units	Variances	Flexible Budget	Variances	Actual costs at 4,800 units
Direct materials	$45,000				$51,000
Direct labour	52,000				48,000
Equipment depreciation	7,000				7,000
Indirect labour	3,600				4,300
Indirect materials	5,000				4,700
Rent and insurance	13,000				13,000

2. Briefly explain the budgeting process, i.e., its functions, advantages, disadvantages, and components of the master budget. (10 marks)