Cellular Technologies manufactures capacitors for cellular base stations and other communication applications. The company€™s July 2016 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, and its actual operating income was as follows:

Requirements
1. Prepare a flexible budget performance report for July 2016.
2. What was the effect on Cellular€™s operating income of selling 2,000 units more than the static budget level of sales?
3. What is Cellular€™s static budget variance for operating income?
4. Explain why the flexible budget performance report provides more useful information to Cellular€™s managers than the simple static budget variance. What insights can Cellular€™s managers draw from this performance report?

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CELLULAR TECHNOLOGIES Flexible Budget For the Month Ended July 31, 2016 Budget Amounts per Unit Units Sales Revenue Variable Expenses Contribution Margin Fixed Expenses Operating Income 7,500 9,000 11,000 S 25 $187,500 $225,000 $275,000 13 97,500 117,000 143,000 90,000 108,000 132,000 56,000 56,000 6,000 34,000 52,000 76,000 CELLULAR TECHNOLOGIES Income Statement For the Month Ended July 31, 2016 Sales Revenue Variable Expenses Contributions Margin Fixed Expenses Operating Income $282,000 148,000 134,000 57,500 76,500