Concept explainers
Preparing a flexible budget performance report Learning Objective 1
3. Static Bud. Var. for Op. Inc. $22,900 F
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.
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
The company sold 9,500 units during July, and its actual operating income was as follows:
CELL ONE TECHNOLOGIES Income Statement For the Month Ended July 31,2018 |
|
Sales Revenue | $206,500 |
Variable Expenses | 100,100 |
Contribution Margin | 106,400 |
Fixed Expenses | 56,000 |
Operating Income | $ 50,400 |
Requirements
1. Prepare a flexible budget performance report for July.
2. What was the effect on Cell One s operating income of selling 2,000 units more than the static budget level of sales?
3. What is Cell One's static
4. 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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