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Question 2

StarDates Ltd produces personalized T-shirts. Each shirt is designed for an individual customer and is ordered over the internet. The companys operating budget for September included these data:

Number of shirts	25,000
Selling price per shirt	$18
Variable cost per shirt	$10.50
Fixed cost for the month The actual results for September were:	$105,000
Number of shirts produced and sold	19,500
Average selling price per shirt	$15.50
Variable cost per shirt	$9.50
Fixed cost for the month	$95,000

The CEO of the company observed that the operating profit for September was much lower than anticipated, despite a higher than budgeted selling price and a lower than budgeted variable cost per unit. As the companys management accountant, you have been asked to provide explanations for the disappointing September results.

Management develops its flexible budget on the basis of budgeted per-output-unit revenue and per-output-unit variable costs without detailed analysis of budgeted inputs.

Required:

1. Prepare a static-budget-based variance analysis of the September performance.
2. Prepare a flexible-budget-based variance analysis of the September performance.
3. Why might management find the flexible-budget-based variance analysis more informative than the static-budget-based variance analysis? Explain your answer.

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