Question 2 Rockets and More Ltd. Is concerned about the uncertain nature of its market for the upcoming year and has prepared budgeted results on 90%, 100% and 105% activity as follows: 90% 100% 105% Output 45,000 50,000 52, 500 S $ $ Revenue 1,350,000 1,500,000 1,575,000 Less: Materials 337,500 375,000 393,750 Labour Costs 440,000 485,000 507,500 Production overhead costs 217,500 235,000 243,750 Administrative Costs 120,000 130,000 135,000 Selling and distribution cost 70,000 75,000 77,500 1.185,000 1.300.000 1.357,500 Net Profit 165, 000 200,000 217,500 Only 37,500 units have been sold with the following results: $ $ Revenue 1,075,000 Less: Expenses Materials costs 311,750 Labour costs 351,500 Prod. Overhead costs 171,250 Administration costs 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. Prepare a statement for the year showing the flexible budget at the actual level of activity. B. Examine the variances of $20,000 or greater, analysing the possible reasons for such variances