Required

A. Complete the flexible budget (of High performance tyres and both products combined) and associated variances using the template provided. (Please copy and paste the table with your calculations from Microsoft Excel to your Word File)

B. Complete reconciliation of variances using the template provided (Calculate the six profit variances and reconcile the actual operating profit to the planned operating profit using the template provided. (Please copy and paste the table with your calculations from Microsoft Excel to your Word File)

C. Prepare a short report outlining BTs performance for the year ended 30 June 2018. The focus of your report should be on how the variances may relate to each other. Suggest any issues that may warrant further investigation by Peter.

D. Discuss and analyse sales price and sales volume variances that you have calculated. Are they favourable or unfavourable? What are the drivers of these variances?

Case Study: Black Tyres (BT) manufactures and sells two products in Australia: low-budget tyres and high performance tyres. Low-budget tyres are made from hard rubber for durability while high performance tyres are made from softer rubber for superior grip in wet conditions. When the low-budget model was introduced in the market, another competitor from India introduced low priced tyres with almost alike features. Due to this, the Sales Director decides to reduce the price of low-budget tyres so that sales do not get hurt. At the same time, the sales director decided to run a marketing campaign demonstrating the benefits of high performance tyres and promoting the brand to the top-segment customers. The campaign focused on unique features and safety of high-performance tyres. The market is growing by about 0.8% per year, with strong competition due to tyres imported from India. The CFO, Peter Srock, has provided extracts from last years actual income statement and profit plan. When Peter prepared the budget in November 2017, he expected and assumed that the market would grow by 0.80% compared to the previous year. When he received the Annual Tyre Industry Report, he found that the market actually grew by 0.75%.

Black Tyres
Market Size*
				actual	budget
				tyres	tyres
			Year Ended 30 June 2017	5,787,676	5,704,582
			Year Ended 30 June 2018	5,831,168	5,833,977
* The market in which BT competes as a supplier of tyres.

Black Tyres
Income Statement
Year Ended 30 June 2018
				budget	actual
		sales revenue	$'000	30,018	30,262
		variable costs	$'000	(21,012)	(21,396)
		contribution margin	$'000	9,005	8,865
		non-variable costs	$'000	(568)	(558)
		net operating profit	$'000	8,437	8,307
Product Breakdown
	Low-budget Tyre
		sales volume	tyres	205,000	195,358
		selling price	$ per tyre	86.460	84.739
		variable costs	$ per tyre	(60.522)	(61.242)
		contribution margin	$ per tyre	25.938	23.497
	High-performance Tyre
		sales volume	tyres	97,500	109,095
		selling price	$ per tyre	126.087	125.646
		variable costs	$ per tyre	(88.261)	(86.460)
		contribution margin	$ per tyre	37.826	39.186
	Both Products Combined
		sales volume	tyres	302,500	304,453
		market share		5.185%	5.221%
		selling price	$ per tyre	99	99
		variable costs	$ per tyre	(69)	(70)
		contribution margin	$ per tyre	29.770	29.119

Black Tyres
Income Statement
Year Ended 30 June 2018
				budget	variance	flexible budget	variance	actual	total variance
		sales revenue	$'000	30,018	(13,127)	16,891	13,371	30,262	244
		variable costs	$'000	(21,012)	9,189	(11,823)	(9,573)	(21,396)	(384)
		contribution margin	$'000	9,005	(3,938)	5,067	3,798	8,865	(140)
		non-variable costs	$'000	(568)		(568)	10	(558)	10
		net operating profit	$'000	8,437	(3,938)	4,499	3,808	8,307	(130)
Product Breakdown
	Low-budget Tyre
		sales volume	tyres	205,000	(9,642)	195,358		195,358
		selling price	$ per tyre	86.460		86.460	(1.721)	84.739	(1.721)
		variable costs	$ per tyre	(60.522)		(60.522)	(0.720)	(61.242)	(0.720)
		contribution margin	$ per tyre	25.938		25.938	(2.441)	23.497	(2.441)
	High-performance Tyre
		sales volume	tyres	97,500				109,095
		selling price	$ per tyre	126.087				125.646	(0.441)
		variable costs	$ per tyre	(88.261)				(86.460)	1.801
		contribution margin	$ per tyre	37.826				39.186	1.360
	Both Products Combined
		sales volume	tyres	302,500				304,453
		market share		5.185%				5.221%
		selling price	$ per tyre	99.232				99.397	0.165
		variable costs	$ per tyre	(69.463)				(70.278)	(0.816)
		contribution margin	$ per tyre	29.770				29.119	(0.651)