Creative Bubbles, Inc. produces multicolored bubble solution used for weddings and other events. The company sold 60,000 bubble kits during December, and its actual operating income was as follows:

Requirement 1. Prepare the income statement performance report. Note: The master budget was based on expected sales volume of 55,000 bubble kits. (For accounts with a 0 balance, make sure to enter "0" in the appropriate column. Label each variance as favorable (F) or unfavorable (U). A variance of zero is considered favorable.)

Requirement 3. What is Bubbles' master budget variance? Explain why the income statement performance report provides Bubbles' managers with more useful information than the simple master budget variance. What insights can Bubbles' managers draw from this performance report?

Creative Bubbles' master budget variance is $______			, meaning that its operating income is________
than expected.

Creative Bubbles, Inc. Income Statement Month Ended December 31 $ 188,250 Variable expenses: $75,750 Cost of goods sold Sales commissions 17,750 Utility expense 6,000 Fixed expenses: Salary expense 32,200 Depreciation expense 20,000 Rent expense 5,750 7,000 Utility expense $ 164,450 Total expenses $23,800 Operating income Flexible Budget Income Statement Month Ended December 31 Flexible Budget per Output Unit Output Units (Kits) 60,000 65,000 55,000 $ 165,000 $ 180,000 $ 195,000 $3.00 Sales revenue Variable expenses: 1.25 75,000 81,250 Cost of goods sold 68,750 13,750 15,000 Sales commissions 0.25 16,250 0.10 Utility expense 6,000 6,500 5,500 Fixed expenses: Salary expense 30,000 30,000 33,000 20,000 20,000 23,000 Depreciation expense Rent expense 6,000 6,000 10,000 7,000 7,000 7,000 Utility expense $ 151,000 $ 159,000 $ 177,000 Total expenses $14,000 $ 21,000 $ 18,000 Operating income For the month ended December 31 Volume Actual Flexible Budget Flexible Master Budget Variance Variance Budget Output units Sales revenue Variable expenses: Cost of goods sold Sales commissions expense Utility expense Fixed expenses: Salary expense Depreciation expense Rent expense Utility expense Total expenses Operating income