Cell One Technologies manufactures capacitors for cellular base stations and other communications applications. The company's July 2018 flexible budget shows output levels of 6,000, 7,500, and 9,500 units. The static budget was based on expected sales of 7,500 units.

CELL ONE TECHNOLOGIES

Flexible Budget

For the Month Ended July 31, 2018

The company sold 9,500 units during July, and its actual operating income was as follows:
CELL ONE TECHNOLOGIES
Income Statement
For the Month Ended July 31, 2018
Sales Revenue ................................ $ 206,500
Variable Expenses ............................. 100,100
Contribution Margin .......................... 106,400
Fixed Expenses ................................. 56,000
Operating Income ........................... $ 50,400
Requirements
1. Prepare a flexible budget performance report for July.
2. What was the effect on Cell One's operating income of selling 2,000 units more than the static budget level of sales?
3. What is Cell One's static budget variance for operating income?
4. Explain why the flexible budget performance report provides more useful information to Cell One's managers than the simple static budget variance. What insights can Cell One's managers draw from this performance report?

Transcribed Image Text:

Budget Amount per Unit Units 6,000 7,500 9,500 $ 21 $ 126,000 $ 157,500 $ 199,500 $21 Sales Revenue Variable Expenses 10 60,000 75,000 95,000 66,000 Contribution Margin 82,500 104,500 55,000 Fixed Expenses 55,000 55,000 $ 11,000 $ 27,500 $ 49,500 Operating Income