Answer:
A flexible budget unlike a static budget changes as volume or activity changes in the business.
A flexible budget provides a more accurate review of the financial performance of a Business than a static Budget
Management in reviewing the Actual position versus a static Budget didn't do much justice to the hardworking sales team that have almost delivered almost 4 times their sales target and even kept cost in control.
By using a flexible budget, we can tell that the respective budgets for each variable expense component ought have been:
Sales commission ought have been $8,603 ($0.78 per unit of sales) thereby showing a true savings of $5,743 and not unfavorability of $592
Advertising ought have been $4,301 ($0.39 per unit of sales) thereby showing a true savings of $3,311 and not $144
Free samples ought have been $6,759 ($0.61 per unit of sales) thereby showing a true savings of $5,439 and not $462
Travel expense ought have been $14,748 ($1.34 per unit of sales) thereby showing a true savings of $10,898 and not $38
By doing this simple analysis he would have shown management that he not only delivered on Sales Volume buy worked efficiently to cut cost per unit of sale and deliver a true savings on costs of $25,391 and not $52.
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