CellBase Technologies manufactures capacitors for cellular base stations and other communications applications. The company’s December 2011 flexible budget income statement shows output levels of 7,500, 9,000, and 11,000 units. The static budget was based on expected sales of 9,000 units.

The company sold 11,000 units during December, and its actual operating income was as follows:

Requirements 

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

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CELLBASE TECHNOLOGIES Flexible Budget Income Statement Month Ended December 31, 2011 Flexible Budget Output Units (Capacitors) per Output Unit 7,500 9,000 11,000 Sales revenue 23 $ 172,500 $ 207,000 $ 253,000 Variable costs 11 82,500 99,000 121,000 Fixed costs 57,000 57,000 57,000 Total costs 139,500 156,000 178,000 Operating income $ 33,000 $ 51,000 $ 75,000