AllTalk Technologies manufactures capacitors for cellular base stations and other communications applications. The company€™s January 2012 flexible budget income statement shows output levels of 6,500, 8,000, and 10,000 units. The static budget was based on expected sales of 8,000 units.

The company sold 10,000 units during January, and its actual operating income was as follows:

Requirements
1. Prepare an income statement performance report for January.
2. What was the effect on AllTalk€™s operating income of selling 2,000 units more than the static budget level of sales?
3. What is AllTalk€™s static budget variance? Explain why the income statement performance report provides more useful information to AllTalk€™s managers than the simple static budget variance. What insights can AllTalk€™s managers draw from this performancereport?

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ALLTALK TECHNOLOGIES Flexible Budget Income Statement Month Ended January 31, 2012 By Units (Capacitors) Per Unit 6,500 8,000 10,000 $ 156,000 $ 192,000 S 240,000 Sales revenue $24 $10 80,000 Variable expenses 65,000 100,000 91,000 $ 112,000 S 140,000 Contribution margin Fixed expenses 53,000 53,000 53,000 Operating income 38,000 $ 59,000 S 87,000