The following data are for the month of January for the Sierra Company. Assume the cost driver is the number of units sold.

Static budget data:

Sales of 9,500 pairs at $100 per pair

Variable costs of $75 per pair

Total fixed costs $120,000

Actual results:

Sales of 10,100 pairs at $96 per pair

Variable costs of 79 per pair

Total fixed costs $122,000

Required:

Prepare the static budget to show the operating income. (1.5 marks)

Prepare a flexible budget to show the operating income. (1.5 marks)

Calculate the flexible budget variances for all items showing clearly which one is favorable and which is unfavorable. (2 marks)

What are the advantages of a flexible budget over static budget? (2 marks)