Case 1. Source, Inc.. distributes computer games to software retailers, including dot.coms. Source's top management meets monthly to evaluate the company's performance. Controller Jenniler Lee prepared the performance report on page 1013 for the meeting. Lee also revealed that the actual sale price of $30 per game was equal to the budgeted sale price and that there were no changes in inventories for the month. Management is disappointed by the operating income results. CEO Mark Baker exclaims. "How can actual operating income be roughly half the static budget amount when there are so many favorable variances?" Required 1. Prepare a more informative performance report. Be sure to include a flexible budget for the actual number of computer games bought and sold. 2. As a member of Source's management team, which variances would you want investi- Mated Why? 3. Baker believes that many consumers are postponing purchases of new games until after the introduction of Microsoft's Xbox game machine. In light of this information, how would you rate the company's performance?