Chapter 23, Problem P23.30BPGB

Preparing a flexible budget performance report

Learning Objective 1

3. Static Bud. Var. for Op. Inc. $22,900 F

Cell Plus Technologies manufactures capacitors for cellular base stations and other communication applications. The company’s July 2018 flexible budget shows output levels of 8,500, 10,000, and 12,000 units. The static budget was based on expected sales of 10,000 units.

CELL ONE TECHNOLOGIES

Flexible Budget

For the Month Ended July 31, 2018

Budget

Amounts

per Unit

Units		8,500	10,000	12,000
Sales Revenue	$ 24	$ 204,000	$ 240,000	$ 288,000
Variable Expenses	13	110,500	130,000	156,000
Contribution Margin		93,500	110,000	132,000
Fixed Expenses		57,000	57,000	57,000
Operating Income		$ 36,500	$ 53,000	$ 75,000

The company sold 12,000 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	$ 295,000
Variable Expenses	161,100
Contributions Margin	133,900
Fixed Expenses	58,000
Operating Income	$ 75,900

Requirements

1. Prepare a flexible budget performance report for July 2018.
2. What was the effect on Cell Plu3 s operating income of selling 2,000 units more than the static budget level of sales?
3. What is Cell Plus's static budget variance for operating income?
4. Explain why the flexible budget performance report provides more useful information to Cell Plus s managers than the simple static budget variance. What insights can Cell Plus s managers draw from this performance report?