Reel Time distributes DVDs to movie retailers, including dot-coms. Reel Time€™s top management meets monthly to evaluate the company€™s performance. Controller Jairo Munoz prepared the following performance report for the meeting.

Munoz also revealed that the actual sales price of $20 per movie was equal to the budgeted sales price and that there were no changes in inventories for the month. Management is disappointed by the operating income results. CEO Philippe Gollin exclaims, €œHow can actual operating income be roughly 13% of the static budget amount when there are so many favourable 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 Reel Time€™s management team, which variances would you want investigated? Why?
3. Gollin 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€™s performance?

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REELTIME, INC. Income Statement Performance Report Month Ended July 31 Actual Results Static Budget Variance Sales revenue $1,640,000 $1,960,000S320,000 U Variable expenses: Cost of goods sold 773,750 980,000206,250 F 107,800 53,900 77,375 42,850 30,425 F 11,050 F es cominisstons Shipping expense Fixed expenses: Salary expense 300,500 214,000 108,250 68,500 1,623,525 1,832,950 209,425 F 16475 127050 S110,575 U 311,450 208,750 128,250 81,100 10,950 U 5,250 F 20,000 U 12,600 U Depreciation expense Rent expense Advertising expense Total expenses Operating income