Equare ltd manufactures wristwatch batteries. The sales for wristwatch batteries have been deteriorating because of introduction of rechargeable watches. The managing director is disappointed with the last quarter results. The following table shows the static budget and actual performance for the last period.

	Static budget	Actual Results
Sales Volume	7,500	6,600
	BWP	BWP
Sales revenue	337,500	295,950
Direct Materials	(67,500)	(59,000)
Direct Labor	(90,000)	(76,867)
Machine operator costs	(88,200)	(89,640)
Other Production Overhead	(12,750)	(10,645)
Gross Profit	79,050	59,798
General expenses	(58,010)	(56,890)
Net Profit	21,040	2,908

Additional Information

Direct material and direct labor costs are variable.

Machine operator expenses are step fixed. It expected on machine operator is required for every 3250 units manufactured.

Factory power costs have both a fixed and variable element. If the activity is 9,500 units the total power costs will be BWP9,975

General expenses are a fixed cost.

Other production overheads have a variable cost of BWP0.80 per unit.

Required:

Prepare the company’s flexible budget for the actual level of activity. Determine Favorable or Unfavorable Variances. [14 marks]

Answer rating: 100% (QA)

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