Small Talk Technologies manufactures capacitors for cellular base stations and other communications applications. The company's July 2016 flexible budget 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 July, and its actual operating income was as follows:

Requirements:

1. Prepare a flexible budget performance report for July.
2. What was the effect on Small Talk?s operating income of selling 2.000 units more than the static budget level of sales?
3. What is Small Talk?s static budget variance for operating income?
4. Explain why the flexible budget performance report provides more useful information to Small Talk?s managers than the simple static budget variance. What insights can Small Talks managers draw from this performance report?

SMALL TALK TECHNOLOGIES Flexible Budget For the Month Ended July 31, 2016 Units Sales Revenue Variable Expenses Contribution Margin Fixed Expenses Operating Income Budget Amount per Unit 7,500 9,000 11,000 $24 $ 180,000 $216,000 $264,000 14 105,000 126,000 154,000 75,000 90,000 110,000 53,000 53,000 53,000 $ 22,000 $ 37,000 $ 57,000 SMALL TALK TECHNOLOGIES Income Statement For the Month Ended July 31, 2016 Sales Revenue Variable Expenses Contribution Margin Fixed Expenses Operating Income $ 271,000 159,200 111,800 54,000 $ 57,800