Chapter 23, Problem P23.25APGA

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 budget variance for operating income?
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?