Williams cafe prepares and sells meals in a university. The cafes budgeted figures (planning budget) and actual figures for the year ending 30 June 2019 is given below:

Budgeted amount ($)

Actual amount ($) Sales revenue 240 000 220 000 Expenses: Cost of sales 140 000 110 000 Rent 24 000 28 000 Wages and salaries 36 000 38 000 Depreciation 3 200 4 600 Interest 3 600 2 800 Insurance 12 000 12 000 Electricity 4 000 3 800 Net profit 17 200 20 800

Required: (a) Explain the importance of variance analysis in the budgeting process?

(b) Prepare a variance report and classify for each item whether it is a favourable variance or unfavourable variance. (c) Suggest one possible reason for the variance in cost of sales.