Question 3.Kayleigh, a second-year business owner, has learned abit about budgeting but needs some more insight. At the start ofthe year, she made a budget for selling 2,000 umbrellas, her mainproduct. Kayleighs prices vary based on the weather (she increasesprices on rainy days and offers discounts on sunny days), but shebudgeted at an average sale price of $8 per umbrella. It is nownear the end of the year and Kayleigh expects the final salesnumber to total 2,200 umbrellas at a price of $7 each. She suspectsthat her variable expenses for umbrella purchase, design additions,and marketing, budgeted at a total of $10,000, are over by 10%.However, she considers the increased costs to be direct results ofhigher sales volume which is a good thing. Kayleigh believes shefixed costs for her store have remained on budget. She decided notto track fixed costs for umbrellas since she does not know ifthings like employee salary, store rent, etcetera can be allocatedaccurately.

Give Kayleigh some advice on budgeting, includingdiscussion of how flexible and static budgets can impact herspecific situation. Also, analyze her business situation and makerecommendations.