Question 2 Kidstory produces illustrated children's story books. In January 2018 the company launched a new book, which they hope to develop into a successful series of books. The following operating budget has been produced for January 2018 (assume no opening and closing stock): 20,000 units 10 per book Number of notebooks Selling price Variable costs Direct material standard costs 2 square metres of paper input allowed per unit; E0.30 per square metre of paper 4 mins of manufacturing labour allowed per unit; 21 per hour 100,000 Direct labour standard costs Total fixed costs The actual results for January 2018 were: Number of notebooks Revenues Variable costs 15,000 units 165,000 Direct material 9,712.50 (1.85 square metres per notebook; 0.35 per square metre) 22,000 (4 mins of manufacturing labour; 22 per hour) 125,000 Direct labour Total fixed costs Required: a) Calculate level 2 variances for revenues, fixed costs and operating profit, as well as level 2 and level 3 variances for variable costs [30 marks] b) Comment on the results, outlining which are the key areas of under-performance and over- performance. [10 marks] c) Evaluate how budgets can lead to forms of gaming behaviour and the 'blame game'. [10 marks]