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Question 27 (5 points) The following static and flexible budget report was prepared for the sales manager of Earthworks Ltd for the fourth quarter of
Question 27 (5 points) The following static and flexible budget report was prepared for the sales manager of Earthworks Ltd for the fourth quarter of 2019: Static Budget (20,000 units) Budget Actual Variance $ 500,000 $ 550,000 $ 50,000 Sales Variable costs: Commisions (15% of sales) Advertising (20% of sales) Travel (10% of sales) U U 75,000 100,000 50,000 225,000 80,000 105,000 55,000 240,000 5,000 5,000 5,000 15,000 U U Fixed costs: Sales salaries Administrative salaries 120,000 75,000 195,000 420,000 $ 120,000 75,000 195,000 435,000 $ Total costs $ 15,000 U Flexible Budget (Actual sales 22,000 units) Budget Actual Variance Sales $ 550,000 $ 550,000 $ Variable costs: Commisions (15% of sales) 82,500 80,000 2,500 F Advertising (20% of sales) 110,000 105,000 5,000 Travel (10% of sales) 55,000 55,000 247,500 240,000 7,500 Fixed costs: Sales salaries 120,000 120,000 Administrative salaries 75,000 75,000 195,000 195,000 Total costs $ 442,500 $ 435,000 $ 7,500 Required: Assuming the sales manager has control over sales and selling costs, a) Comment on the manager's performance. (3 marks) b) Explain why flexible budgets are useful. (2 mark)
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