Chapter 10, Problem 10.44AP

Prepare and interpret a performance report (Learning Objective 2)

Refer to the Outrageous Bubbles data in P10-43A. The company sold 60,000 bubble kits during March, and its actual operating income was as follows:

OUTRAGEOUS BUBBLES, INC.
Income Statement
Month Ended March 31
Sales revenue	$194,000
Variable expenses:
Cost of goods sold	$ 75,500
Sales commissions	16,500
Utility expense	6,000
Fixed expenses:
Salary expense	32,200
Depreciation expense	20,000
Rent expense	14,550
Utility expense	7,000
Total expenses	$171,750
Operating income	$ 22,250

Requirements

1. 1. Prepare an income statement performance report for March.
2. 2. What accounts for most of the difference between actual operating income and master budget operating income?
3. 3. What is Outrageous Bubbles’ master budget variance for operating income? Explain why the income statement performance report provides Outrageous Bubbles’ managers with more useful information than the simple master budget variance. What insights can Outrageous Bubbles’ managers draw from this performance report?