Network Technologies manufactures capacitors for cellular base stations and other communication applications. The company’s July 2014 flexible budget 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:

NETWORK TECHNOLOGIES

Income Statement

For the Month Ended July 31, 2014.

Sales Revenue……………………………      $ 269,500

Variable Expenses………………………        141,500

Contributions Margin……………………     128,000

Fixed Expenses ………………………              57,000

Operating Income$………………………        71,000

Requirements 

1. Prepare a flexible budget performance report for July 2014. 

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? 

4. Explain why the flexible budget 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 performance report?

NETWORK TECHNOLOGIES Flexible Budget For the Month Ended July 31, 2014 Budget Amounts Per Unlt By Units 7,000 8500 10,500 Sales Revenue25 175,000 $212 500 3 262,500 13 91,000 110,500 136,500 84,000 102,000 126,000 56,000 56,000 56,000 28,000 46,000 3 70,000 Variable Expenses Contribution Margin Fixed Expenses Operating Income