MensClothing Company produces mens ties since 1995. In order to reasonably plan and closely control their manufacturing costs, they use the budgeting system. The following budgeted and actual amounts are released to top management for 2020 and they asked you, a cost accountant, to prepare a performance budget report so that they can analyze all type of variances including both favourable and unfavourable.

Cost	Budget at 3,000 Units	Actual Amounts at 3,800 Units
Direct materials	$75,000	$90,000
Direct labour	36,000	48,000
Equipment depreciation	5,000	5,000
Indirect labour	3,000	4,000
Indirect materials	2,000	3,000
Rent and insurance	18,000	19,000

Instructions:

1. Prepare a static budget report for MensClothing Company for the year. (5 marks)

Cost	Budgeted costs at 3,000 units	Static Budget Variances	Actual costs at 3,800 units
Direct materials	$75,000		$90,000
Direct labour	36,000		48,000
Equipment depreciation	5,000		5,000
Indirect labour	3,000		4,000
Indirect materials	2,000		3,000
Rent and insurance	18,000		19,000

2. Prepare a flexible budget report for MensClothing Company for the year. (10 marks)

Budgeted costs at 3,000 units	Variances	Flexible Budget at actual activity level	Variances	Actual costs at 3,800 units
$75,000				$90,000
36,000				48,000
5,000				5,000
3,000				4,000
2,000				3,000
18,000				19,000

3. Are there any problems identified in part (b) that top management and a production manager should be aware of? Briefly explain. (5 marks
4. What are disadvantages of the static budget? Briefly explain. (5 marks)