Prepare a flexible budget for planning (Learning Objective 1)
Lasting Bubbles produces multicolored bubble solution used for weddings and other events. The company’s static budget income statement for August 2007 follows. It is based on expected sales volume of 55,000 bubble kits.

Lasting Bubbles’ plant capacity is 62,500 kits. If actual volume exceeds 62,500 kits, the company must expand the plant. In that case, salaries will increase by 10%, depreciation by 15%, and rent by $6,000. Lixed utilities will be unchanged by any volume increase.

Requirements 1. Prepare flexible budget income statements for the company, showing output levels of 55,000, 60,000, and 65,000 kits.
2. Graph the behavior of the company’s total costs.
3. Why might Lasting 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?

LASTING BUBBLES, INC. Static Budget Income Statement Month Ended August 31, 2007 Sales revenue Variable expenses: Cost of goods sold Sales commissions Utilities expense Fixed expenses: Salary expense Depreciation expense Rent expense Utilities expense Total expenses Operating income $165,000 63,250 13,750 6,050 32,500 20,000 11,000 5,200 151,750 $ 13,250