CELL ONE TECHNOLOGIES Flexible Budget For the Month Ended July 31, 2018 Budget Amount per Unit Units 6,000 7,500 9,500 Sales Revenue $21 $ 126,000 $ 157,500 $ 199,500 Variable Expenses 10 60,000 75,000 95,000 Contribution Margin 66,000 82,500 104,500 Fixed Expenses 55,000 55,000 55,000 Operating Income $ 11,000 $ 27,500 $ 49,500 CELL ONE TECHNOLOGIES Income Statement For the Month Ended July 31, 2018 Sales Revenue $ 206,500 Variable Expenses Contribution Margin 100, 100 106,400 Fixed Expenses 56,000 Operating Income $ 50,400
Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
Preparing a flexible budget performance report
Cell One Technologies manufactures capacitors for cellular base stations and other communications applications. The company’s July 2018 flexible budget shows output levels of 6,000, 7,500, and 9,500 units. The static budget was based on expected sales of 7,500 units.
The company sold 9,500 units during July, and its actual operating income was as follows:
Requirements
- Prepare a flexible budget performance report for July.
- What was the effect on Cell One’s operating income of selling 2,000 units more than the static budget level of sales?
- What is Cell One’s static
budget variance for operating income? - Explain why the flexible budget performance report provides more useful information to Cell One’s managers than the simple static budget variance. What insights can Cell One’s managers draw from this performance report?
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