Steph Gates, sales manager of Pluto Computers Ltd, was given the following budget performance report for selling expenses in the marketing software department for the month of April 2020.

The recently appointed managing director of the company was pleased that Steph had been able to increase her department’s sales by 20% over the budgeted sales of 12 000 units. On the other hand, Steph came in for some severe criticism for the apparent blow‐out of selling expenses in her department. Steph felt that the criticism she received was unfounded, because she believed that, given the level of sales volume achieved, the selling expenses were under control.

She is unsure how to argue her case with the managing director, and approaches you as an accountant to help her.

Required

(a) Prepare a report based on flexible budget principles.

(b) Does Steph deserve the criticism she received for not controlling selling expenses in her department?

(c) Should the format of future budget reports be changed and, if so, why?

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Sales in units Fixed expenses: Sales salaries Office salaries Rent PLUTO COMPUTERS LTD Marketing Software Budget Report for the month ended 30 April 2020 Depreciation-delivery vehicles Total fixed expenses Variable costs: Sales commissions Advertising expense Free samples and promotions Travel expense Total variable expenses Total expenses U indicates an unfavourable variance. F indicates a favourable variance. Actual Variance 14 400 2400 F Budget 12000 $ 1800 $ 1800 1200 1 200 2250 2250 750 750 6000 6000 2400 3168 1200 1 200 768 U U 1440 2016 576 U 6000 6912 912 U 11 040 13296 2256 U $17040 $19296 $2256 U