Refer to the Lasting Bubbles data in P10-64A. The company sold 60,000 bubble kits during August, and its actual operating income was as follows:
LASTING BUBBLES, INC.
Income Statement
Month Ended August 31
Sales revenue .........................................................................................$185,000
Variable expenses:
Cost of goods sold ..................................................................................$69,500
Sales commissions ....................................................................................18,000
Utilities expense ........................................................................................12,000
Fixed expenses:
Salary expense...........................................................................................34,000
Depreciation expense ...............................................................................20,000
Rent expense..............................................................................................10,000
Utilities expense .........................................................................................5,000
Total expenses..........................................................................................168,500
Operating income.....................................................................................$16,500
Requirements
1. Prepare an income statement performance report for August in a format similar to Exhibit 10-7.
2. What accounts for most of the difference between actual operating income and static budget operating income?
3. What is Lasting Bubbles' static budget variance? Explain why the income statement performance report provides Lasting Bubbles' managers with more useful information than the simple static budget variance. What insights can Lasting Bubbles' managers draw from this performance report?