Abulafia Srl manufactures tyres for the Formula 1 motor racing circuit. For August 2018 Abulafia budgeted to manufacture and sell 3000 tyres at a variable cost of €74 per tyre and a total fixed cost of €54,000. The budgeted selling price was €110 per tyre. Actual results in August 2018 were 2800 tyres manufactured and sold at a selling price of €112 per tyre. The actual total variable costs were €229,600, and the actual total fixed costs were €50,000. 

Required

1. Prepare a performance report (akin to Exhibit 15.3) that uses a flexible budget and a static budget. 

2. Comment on the results in requirement 1.

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Exhibit 15.3 Flexible-budget-based variance analysis for Sofiya for April 2018 Level 2 analysis Flexible-budget Flexible budget (3) Sales-volume Static Actual results variances (2) = (1) – (3) variances budget (5) (1) (4) = (3) – (5) 10 000 €1 850 000 1120 000 Contribution margin 730 000 705 000 €25 000 10 000 €1 800 000 990 000 2 000 U €360 000 U 198 000 F Units sold €50 000 F* 130 000 U 12 000 €2 160 000 1188 000 Revenues Variable costs 80 000 U 810 000 162 000 U 972 000 5 000 F €75 000 U 710 000 €100 000 Fixed costs €162 000 U 710 000 €262 000 Operating profit €75 000 U €162 000 U Total flexible-budget variance Total sales-volume variance €237 000 U Total static-budget variance *F - favourable effect on operating profit, U - unfavourable effect on operating profit.