The static budget for the Study Mate Publishers was estimated sales revenue of $20000000 on

sales of 330000 units. The variable production costs (cost of goods sold) were estimated at

$8 250000, or $25 per unit sold. Actual results for the company exceeded expectations, with

revenue of over $22000000 on sales of 360 000 units. However, the production manager was

disappointed to see that the actual variable production costs of $8 800000 exceeded the costs

in the static budget by $550000. The production manager did not understand why his costs

were so much higher than the budgeted amount. If anything, he thought that his division had

been very efficient and that costs should have been lower than reflected in the budget.

Required

Explain why the production manager's actual costs exceeded the amount estimated in the static

budget. Should the production division be disappointed with the results?