Question

Precious Bubbles produces multicolored bubble solution used for weddings and other events. Precious 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 $ 6,000. Fixed utilities will be unchanged by any volume increase. The company’s master budget income statement for March follows. It is based on ­expected sales volume of 65,000 bubble kits.
Sales revenue ..........................................................$ 198,250
Variable expenses:
Cost of goods sold ............................................... 81,250
Sales commissions ................................................ 9,750
Utility expense ..................................................... 13,000
Fixed expenses:
Salary expense...................................................... 30,000
Depreciation expense ........................................... 20,000
Rent expense........................................................ 10,000
Utility expense ..................................................... 5,000
Total expenses.......................................................$ 169,000
Operating income................................................... $ 29,250

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 Precious 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?



$1.99
Sales11
Views280
Comments0
  • CreatedAugust 27, 2014
  • Files Included
Post your question
5000