Question

Refer to the Precious Bubbles’ data in P10- 48B. The company sold 70,000 bubble kits ­during March and its actual operating income was as follows:

PRECIOUS BUBBLES, INC.
Master Budget Income Statement
Month Ended March 31
Sales revenue ................................................................ $ 221,600
Variable expenses:
Cost of goods sold ....................................................... $ 88,250
Sales commissions ....................................................... 13,250
Utility expense ............................................................. 14,000
Fixed expenses:
Salary expense............................................................... 32,300
Depreciation expense ................................................... 20,000
Rent expense................................................................. 9,650
Utility expense ............................................................. 5,000
Total expenses............................................................. $ 182,450
Operating income......................................................... $ 39,150

Requirements
1. Prepare an income statement performance report for March.
2. What accounts for most of the difference between actual operating income and master budget operating income?
3. What is Precious Bubbles’ master budget variance? Explain why the income statement performance report provides Precious Bubbles’ managers with more useful information than the simple master budget variance. What insights can Precious Bubbles’ managers draw from this performance report?



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  • CreatedAugust 27, 2014
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