Network Technologies manufactures capacitors for cellular base stations and other communication applications. The company€™s July 2012 flexible budget income statement shows output levels of 7,000, 8,500, and 10,500 units. The static budget was based on expected sales of 8,500 units.

The company sold 10,500 units during July, and its actual operating income was as follows:

Requirements
1. Prepare an income statement performance report for July 2012.
2. What was the effect on Network€™s operating income of selling 2,000 units more than the static budget level of sales?
3. What is Network€™s static budget variance? Explain why the income statement performance report provides more useful information to Network€™s managers than the simple static budget variance. What insights can Network€™s managers draw from this performancereport?

NETWORK TECHNOLOGIES Flexible Budget Income Statement Month Ended July 31, 2012 Per Unit By Units (Capacitors) 7,000 8,500 10,500 $ 175,000 $ 212,500 S 262,500 $25 Sales revenue Variable expenses $13 91,000 110,500 136,500 84,000 $ 102,000 $ 126,000 Contribution margin Fixed expenses 56,000 56,000 56,000 28,000 $ 46,000 $ 70,000 Operating income