Question 6 - Variance Analysis (15 marks) Assume that owners decided to go ahead with the Canmore expansion (first introduced in question 4). The junior accountant has prepared the following report to compare the static budget (from question 4) to the actual results. The owners have asked you to complete a variance analysis. Required: Part A (4 marks)- Create a Static Budget Report Variance Analysis, indicating whether variances are favorable (F) or unfavorable (U). All variance amounts should be shown as positive numbers. Variance Amount Favorable or Unfavorable 1,472 156,600 4,000 23,490 Static Budget Amount Actual Results Sales in Units 4,008 5,480 Sales $ 501,000 $ 657,600 Less: Variable Costs: Cost of Goods Sold 223,000 219,000 Sales Commissions 75,150 98,640 Total Variable costs 298,150 317,640 Contribution Margin 202,850 339,960 Less: Fixed Costs: Total Fixed Costs 185,000 179,000 Net Operating Income 17,850 160,960 What is the weakness of using a static budget report to evaluate performance? (2 marks) 19,490 137,110 6,000 143,110 Required: Part B (6 marks) - The owners can see that the company sold a different amount of units than budgeted. They have asked you to create a flexible budget report. Flexible Budget Amount Variance Actual Results Amount Favorable (F) or Unfavorable (U) 5,480 685,000 5,480 657,600 $ 27,400 Sales in Units Sales Less: Variable costs: Cost of Goods Sold Sales Commissions Total Variable Costs Contribution Margin Less: Fed Costs Net Operating Income 219,000 98,640 317,640 339,960 179,000 160,960 Management was pleased on the results based on the static budget report. Should they be pleased? What does the flexible budget tell you? What are your recommendations to management based on the flexible budget report