Decision Case 23-1 Movies Galore distributes DVDs to movie retailers, including dot.coms. Movies Galore€™s top management meets monthly to evaluate the company€™s performance. Controller Allen Walsh prepared the following performance report for the meeting:

Walsh also revealed that the actual sale price of $20 per movie was equal to the budgeted sale price and that there were no changes in inventories for the month.
Management is disappointed by the operating income results. CEO Jilinda Robinson exclaims, €œHow 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 Movies Galore€™s management team, which variances would you want investigated? Why?
3. Robinson believes that many consumers are postponing purchases of new movies until after the introduction of a new format for recordable DVD players. In light of this information, how would you rate the company€™sperformance?

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MOVIES GALORE Income Statement Performance Report Month Ended July 31, 2010 Static Budget Actual Results Variance Sales revenue $1,640,000 $1,960,000 $320,000 U Variable costs: Cost of goods sold 205,000 F 775,000 980,000 Sales commisions 77,000 107,800 30,800 F Shipping cost Total variable costs 43,000 $ 895,000 745,000 $3,900 $1,141,700 10,900 F $246,700 F 73,300 U Contribution margin 818,300 Fixed costs: Salary cost 300,500 311,000 10,500 U Depreciation cost 209,000 214,000 5,000 F Rent cost 20,750 U 129,000 108,250 Advertising cost 12, 500 U $ 38,750 U $112,050 U 68,500 $ 691,250 $ 127,050 81,000 $ 730,000 $ 15,000 Total fixed costs Operating income