You have been provided with the following operating statement, which represents an attempt to compare the actual performance for the quarter which has just ended with the budget:

(a) Using a flexible budgeting approach, re-draft the operating statement so as to provide a more realistic indication of the variances and comment briefly on the possible reasons (other than inflation) why they have occurred.
(b) Discuss the problems associated with the forecasting of figureswhich are to be used in flexible budgeting.

Budget Actua Variance Number of units sold (000s 640 1024 168 720 000 1071 144 288 Sales Cost of sales (all variable) Materials 240 Overheads 440 468 94 28 6 Fixed labour cost Selling and distribution costs: 100 72 83 153 Variable 144 Administration costs: Fixed Variable 184 176 8 560 43 12 Net profit 36