Roland Films distributes DVDs to retailers. Roland's top management meets monthly to evaluate the company's performance. Controller Sabrina Ecton prepared the following performance report for the meeting.

Ecton also revealed that the actual sales price of $10 per movie was equal to the budgeted sales price and that there were no changes in inventories for the month.

Management is disappointed by the operating income results. CEO Karen Jensen exclaims, "How can actual operating income be roughly 12% of the static budget amount when there are so many favorable variances?"

Requirements
1. Prepare a more informative performance report. Be sure to include a flexible budget for the actual number of DVDs bought and sold.
2. As a member of Roland's management team, which variances would you want to investigate? Why?
3. Jensen believes that many consumers are postponing purchases of new movies until after the introduction of a new video format. In light of this information, how would you rate the company's performance?

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Roland Films, Inc. Income Statement Performance Report Month Ended March 31 Actual Results Master Budget Variance Sales revenue $1,640,000 $1,960,000 $320,000 U Variable expenses: Cost of goods sold 773,750 77,375 42,850 980,000 206,250 F 107,800 30,425 F 53,900 11,050 F Shi Fixed expenses: Salary expense Depreciation expense Rent expense 311,450 208,750 128,250 81,100 300,500 10,950 U 214,000 5,250 F 108,250 20,000 U 68,500 12,600 U 1,832,950 209,425 F Total expenses Operatingi S 16.475 $127,050 Silo