Question 6 - Variance Analysis (15 marks) Assume that owners decided to go ahead with the Canmore expansion (first introduced in question 4). The junior accountant has prepared the following report to compare the static budget (from question 4) to the actual results. The owners have asked you to complete a variance analysis. Required: Part A (4 marks)- Create a Static Budget Report Variance Analysis, indicating whether variances are favorable (F) or unfavorable (U). All variance amounts should be shown as positive numbers. Static Budget Amount Actual Results Variance Amount Favorable or Unfavorable Sales in Units 4,144 4,950 Sales $ 518,000 $ 594 000 224,000 219,000 67,340 59,400 291,340 278,400 Less: Variable costs: Cost of Goods Sold Sales Commissions Total Variable costs Contribution Margin Less: Fixed Costs: Total Fixed Costs Net Operating Income 226,660 315, 600 186,000 40,660 178,000 137,600 What is the weakness of using a static budget report to evaluate performance? (2 marks) Required: Part B (6 marks) - The owners can see that the company sold a different amount of units than budgeted. They have asked you to create a flexible budget report. Flexible Budget Amount Actual Results Variance Amount Favorable (F) or Unfavorable (U) 4,950 594,000 Sales in Units Sales Less: Variable costs: Cost of Goods Sold 219,000 Sales Commissions 59,400 278,400 315,600 Total Variable Costs Contribution Margin Less: Fixed Costs Net Operating Income 178,000 137,600 Management was pleased on the results based on the static budget report. Should they be pleased? What does the flexible budget tell you? What are your recommendations to management based on the flexible budget report