Prepare a flexible budget for planning (Learning Objective 1)
Digital Technologies manufactures capacitors for cellular base stations and other communications applications. The company’s static budget income statement for October 2007 follows. It is based on expected sales volume of 9,000 units.
Digital Technologies’ plant capacity is 9,500 units. If actual volume exceeds 9,500 units, Digital Technologies must rent additional space. In that case, salaries will increase by 15%, rent will double, and insurance expense will increase by $1,000. Depreciation will be unaffected.

Requirements 1. Prepare flexible budget income statements for 7,500, 9,000, and 11,000 units.
2. Graph the behavior of the company’s total costs.
3. Why might Digital Technologies’ 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 in Requirement 2?

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Sales revenue Variable expenses: DIGITAL TECHNOLOGIES Static Budget Income Statement Month Ended October 31, 2007 Cost of goods sold Sales commissions Shipping expense Fixed expenses: Salary expense Depreciation expense Rent expense Insurance expense Total expenses Operating income $207,000 90,000 9,900 6,300 30,500 12,750 11,500 3,750 164,700 $ 42,300