Using marginal cost format, prepare a flexible budget for 17,200 units and show all the variances indicating which are favourable and which are adverse. Suggest a possible reason for each variance. [14 marks]

b) Flexible budgets have been prepared for two output levels as follows; Production and sales 15000 20000 Sales revenue 150000 200000 Direct materials Direct labour Depreciation Maintenance 105000 15000 1500 2000 140000 20000 1500 2400 Total costs 123500 163900 Profit 26500 36100 Actual production and sales were 17200 and actual costs and revenues were; Sales revenue 171000 Direct materials Direct labour Variable maintenance costs Fixed maintenance costs Depreciation Total costs 114000 18900 1500 825 1500 136725 Profit 34275 Using a marginal cost format, prepare a flexible budget for 17,200 units and show all the variances indicating which are favourable and which are adverse. Suggest a possible reason for each variance (14 marks)