Refer to the Lively Bubbles data in P10- 42A. The company sold 50,000 bubble kits during July, and its actual operating income was as follows:
LIVELY BUBBLES, INC. Master Budget Income Statement Month Ended July 31
Sales revenue ....................................................... $ 160,500
Variable expenses:
Cost of goods sold ............................................... $ 63,000
Sales commissions ................................................ 9,000
Utility expense ..................................................... 10,000
Fixed expenses:
Salary expense...................................................... 32,200
Depreciation expense ........................................... 20,000
Rent expense........................................................ 9,550
Utility expense ..................................................... 4,000
Total expenses....................................................... $ 147,750
Operating income................................................ $ 12,750

Requirements
1. Prepare an income statement performance report for July.
2. What accounts for most of the difference between actual operating income and master budget operating income?
3. What is Lively Bubbles’ master budget variance? Explain why the income statement performance report provides Lively Bubbles’ managers with more useful information than the simple master budget variance. What insights can Lively Bubbles’ managers draw from this performance report?