Reference no: EM133057549
Question - AllTalk Technologies manufactures capacitors for cellular base stations and other communications applications. The company's July 2018 flexible budget shows output levels of 7,500, 9,000, and 11,000 units. The static budget was based on expected sales of 9,000 units. The company sold 11,000 units during July. Its flexible budget and actual operating income was as follows:
Budget per Unit Amount
Unit 25 7,500 9,000 11,000
Sales Revenue 11 187,500 225,000 275,000
Variable Expenses 82,500 99,000 121,000
Contribution Margin 105,000 126,000 154,000
Fixed Expense 52,000 52,000 52,000
Operating Income 53,000 74,000 102,000
AllTalk Income Statement Month Ended July 31, 2018
Sales Revenue 282,000
Variable Expenses 126,100
Contribution Margin 155,900
Fixed Expense 53,500
Operating Income 102,400
Required -
1. Prepare a flexible budget performance report for July.
2. What was the effect on AllTalk's operating income of selling 2,000 units more than the static budget level of sales?
3. What is AllTalk's static budget variance for operating income?
4. Explain why the flexible budget performance report provides more useful information to AllTalk's managers than the simple static budget variance. What insights can AllTalk's managers draw from this performance report?
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