Precious Bubbles produces multicolored bubble solution used for weddings and other events. Precious Bubbles plant capacity is
Question:
Sales revenue ..........................................................$ 198,250
Variable expenses:
Cost of goods sold ............................................... 81,250
Sales commissions ................................................ 9,750
Utility expense ..................................................... 13,000
Fixed expenses:
Salary expense...................................................... 30,000
Depreciation expense ........................................... 20,000
Rent expense........................................................ 10,000
Utility expense ..................................................... 5,000
Total expenses.......................................................$ 169,000
Operating income................................................... $ 29,250
Requirements
1. Prepare flexible budget income statements for the company, showing output levels of 65,000, 70,000, and 75,000 kits.
2. Graph the behavior of the company’s total costs. Use total costs on the y- axis and volume ( in thousands of bubble kits) on the x- axis.
3. Why might Precious Bubbles’ managers want to see the graph you prepared in Requirement 2 as well as the columnar format analysis in Requirement 1? What is the disadvantage of the graphic approach?
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