Popping Bubbles produces multicolored bubble solution used for weddings and other events.
Popping Bubbles' plant capacity is 72,500 kits. If actual volume exceeds 72,500 kits, the company must expand the plant. In that case, salaries will increase by 10%, depreciation by 15%, and rent by $7,000. Fixed utilities will be unchanged by any volume increase.
The company's master budget income statement for October follows. It is based on expected sales volume of 65,000 bubble kits.

Requirements
1. Prepare flexible budget income statements for the company, showing output levels of 65,000, 70,000, and 75,000 kits.
2. Graph the behavior of the company's total costs. Use total costs on the y-axis and volume (in thousands of bubble kits) on the x-axis.
3. Why might Popping Bubbles' managers want to see the graph you prepared in Requirement 2 as well as the columnar format analysis in Requirement 1? What is the disadvantage of the graphic approach?

Transcribed Image Text:

POPPING BUBBLES, INC. Master Budget Income Statement Month Ended October 31 Sales revenue . $188,500 Variable expenses: Cost of goods sold 78,000 Sales commissions. 13,000 Utility expense Fixed expenses: Salary expense. Depreciation expense 13,000 33,000 18,000 Rent expense.. 11,000 Utility expense Total expenses . Operating income.. 5,000 $171,000 $ 17,500 ........