York Ltd. produces paperback notebooks. One of the companys activity is toproduce tailored corporate notebooks. Neha is the management accountant and in

charge to oversee the operating budget. For April 2020 she develops the following operating budget (no opening and closing stock):

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Required

a) Write a report based on the above calculations and explain the difference between the budgeted and the actual operating profit. Please include:

- An interpretation/explanation of the Flexible Budget Variance, the Sales

Volume Variance, the Price Variance (variable costs) and the Efficiency

Variance (variable costs)

- Possible causes for the variances

- Recommendations for improvements

b) Evaluate how budgets can lead to forms of gaming behaviour and the 'blame game'.

60,000 18 per notebook Number of notebooks Selling price Variable costs Direct material standard costs Direct labour standard costs 2 square meter of paper input allowed per unit; 0.30 per square meter paper 4 min of manufacturing labour allowed per unit; 24/h 700,000 Total fixed costs 50,000 1,000,000 The actual results for April were: Number of notebooks Revenues Variable costs Direct material Direct labour Total fixed costs 32,375, 1.85 sqm per notebook, 0.35 per sqm 87,000, 4 min of manufacturing labour, 26.10/h 795,000 Neha produced the following level 2 variance analysis as well as a level 3 variance analysis for variable costs. Sales- Flexible Static volume Flexible Budget Actual Level 2 analysis Budget Variance Budget Variance Results Units 60,000 10,000 50,000 0.00 50,000 Revenues 1,080,000 180,000 900,000 100,000 1,000,000 Variable costs direct material 36,000 6,000 30,000 2,375 32,375 direct labour 96,000 16,000 80,000 7,000 87,000 contribution margin 948,000 158,000 790,000 90,625 880,625 fixed costs 700,000 0.00 700,000 95,000 795,000 operation profit 248,000 158,000 90,000 4,375 85,625 162,375 Static budget variance (SBV) Level 3 analysis for variable costs actual input X actual price actual input x budgeted price Efficiency variance Price variance Flexible Budget units 50,000 1.85 0.35 50,000 2 0.3 Direct materials 32,375 4,625 27,750 2,250 30000 0.07 0.07 26.1 24 Direct labour 87,000 7,000 80,000 80,000