The following budgeted figures have been taken from the cost records of Ace Ltd: 9 000 12 Production units 000 Capacity level 75% R 1 035 000 100% R 1 380 180 000 240 225 Sales 000 Direct material (@ R5 per kg) 000 Direct labour (@ R20 per hour) 000 300 000 Factory overheads 000 Selling and administrative expenses 000 192 000 300 000 330 180 Normal capacity is equal to 12 000 units. As a result of the poor economic conditions the budget for February 2015 has been set at 80% of normal capacity. The company uses the absorption costing method for internal reporting purposes. The following variance report for February 2015 has been presented to management of the production department: Fixed Actual Variance Budget Results Production units 10 000 19 000 Sales units 10000 9 000 IR R R Sales 1 150 000 1 056 700 93 300 (a) Material 200 000 188 100 11 900 (f) Direct labour 250 000 236 250 13 750 (1) Factory overhead 300 000 310 600 10600 (u) Selling and administrative expenses 180 000 208 200 28 200 (u) Net profit 220 000 113 550 106 450 (u) Required: a) Discuss how a flexible budget can be used when exercising cost control. (5) b) Critically discuss the format and content of the variance report for February 2015 as presented to the department Prepare an alternative variance report for the department that would be more meaningful to management The following budgeted figures have been taken from the cost records of Ace Ltd: 9 000 12 Production units 000 Capacity level 75% R 1 035 000 100% R 1 380 180 000 240 225 Sales 000 Direct material (@ R5 per kg) 000 Direct labour (@ R20 per hour) 000 300 000 Factory overheads 000 Selling and administrative expenses 000 192 000 300 000 330 180 Normal capacity is equal to 12 000 units. As a result of the poor economic conditions the budget for February 2015 has been set at 80% of normal capacity. The company uses the absorption costing method for internal reporting purposes. The following variance report for February 2015 has been presented to management of the production department: Fixed Actual Variance Budget Results Production units 10 000 19 000 Sales units 10000 9 000 IR R R Sales 1 150 000 1 056 700 93 300 (a) Material 200 000 188 100 11 900 (f) Direct labour 250 000 236 250 13 750 (1) Factory overhead 300 000 310 600 10600 (u) Selling and administrative expenses 180 000 208 200 28 200 (u) Net profit 220 000 113 550 106 450 (u) Required: a) Discuss how a flexible budget can be used when exercising cost control. (5) b) Critically discuss the format and content of the variance report for February 2015 as presented to the department Prepare an alternative variance report for the department that would be more meaningful to management