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uestion 2 -The T-Shirt Company- Flexible Budgets The T-Shirt Company makes and sells custom t-shirts for special events. The number of t-shirts sold varies significantly from month to month. Management has become concerned about high costs for October You have been asked to evaluate October's performance and to make recommendations. The company had expected to sell 25,000 t-shirts in October, and had prepared the following budgeted information for that sales level: 375,000 100,000 62,500 Total Sales Direct Materials Direct Labour Utilities 43,750 Depreciation 25,000 6,000 1,950 Rent Insurance Fixed Selling & Admin 4,000 Part A- Required: Prepare a budgeted income statement with separate columns showing expected sales and operating income at sales levels of 20,000 t-shirts, 25,000 t-shirts, and 30,000 t-shirts. Use a contribution margin format as shown in Exhibit 9-3 on page 349 Part B- Required: For October, actual sales were 27,000 t-shirts, and the following actual expenses were incurred Total Sales 405,000 114,750 Direct Materials Direct Labour 33,750 40,000 Utilities Depreciation 26,000 6,000 Rent Insurance 1,950 3,800 Fixed Selling & Admin 1. Prepare a variance analysis schedule comparing expected sales and expenses with actual sales and expenses for October. Indicate which lines have a Favourable variance and which have an Unfavourable variance 2. Prepare a second variance analysis schedule comparing actual sales and expenses at 27,000 units with the amounts that would be expected for 27,000 units based on a flexible budget. Use a format like Exhibit 9-4. Indicate which lines have a Favourable variance and which have an Unfavourable variance 3. Evaluate the company's performance for October. What are two areas where the company did well What are two areas of concern for the company. Overall, would you be happy with the company's October performance

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