Mercy Enterprise is a knitting company based in Dublin, Ireland. The following is the static budget and actual results of Mercy Ltd. for the month of April 2020.

Mercy’s management is pleased with the income which is higher than budgeted. However, they understand that significant increase in units sold renders the comparison of actual results and the static budget unfair.

Required

1. Prepare a flexible budget at actual level of output and calculate flexible budget variances.
2. Comment on the budget results.

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Units Revenue (€) Variable Costs: (€) Material Labor Factory Overhead Contribution Margin Fixed Cost: (€) Factory Overhead Office Expenses Operating Income Actual Results 40,000 236,000 76,000 63,200 34,000 62,800 12,880 22,000 27,920 Static-Budget Amounts 30,000 180,000 60,000 45,000 24,000 51,000 12,000 20,000 19,000