QUESTION THREE: BUDGETING Brianna Ltd. hired a new marketing manager early last year. After an informal consumer survey, the marketing manager decided to lower the firm's selling price by 10 per cent and increase television advertising. The operating results at year-end were disappointing. The marketing manager, who assumed that direct materials and direct labour were variable costs and that advertising was a fixed cost, prepared the following analysis for Briana Ltd.'s Chief Executive Officer: Per Static Budget Actual Unit 100,000 units 115,000 units Variance $ S Sales 6.00 600,000 621,000 21,000 Direct materials 2.00 200,000 227,700 (27,700) Direct labour 1.25 125,000 138,000 (13,000) Variable overhead 0.50 50,000 56,925 (6,925) Fixed overhead 75,000 75,200 (200) Advertising 20,000 40,000 20,000) Operating Income 130,000 $83,175 (46,825) The per unit amounts are standard costs and revenue. The marketing manager reported, 'As you can see the major problem is due to inefficiencies in production. My plan would have worked if production had kept its costs in line.' Required: (a) Prepare a flexed budget report for Brianna Lid. AND ensure you identify which variances are favourable (F) or unfavourable (U). (13 Marks) (b) Explain the total activity/volume variance (between original and flexed budget) and provide an explanation of the main variances between flexed budget and actual results. (10 Marks) (c) Comment on the marketing managers opinion that production inefficiencies were to blame for the poor results. (2 Marks)