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Blowing Bubbles, Inc. produces multicolored bubble solution used for weddings and other events. The company sold 60,000 bubble kits during October, and its actual operating
Blowing Bubbles, Inc. produces multicolored bubble solution used for weddings and other events. The company sold 60,000 bubble kits during October, and its actual operating income was as follows: 1(Click the icon to view the actual income statement.) The company's flexible budget income statement for October follows: 2(Click the icon to view the flexible budget income statement.) Read the requirements. Requirement 1. Prepare the income statement performance report. Note: The master budget was based on expected sales volume of 55,000 bubble kits. (For accounts with a 0 balance, make sure to enter "0" in the appropriate column. Label each variance as favorable (F) or unfavorable (U). A variance of zero is considered favorable.) Blowing Bubbles, Inc. Income Statement Performance Report For the month ended October 31 Output units Sales revenue Actual Flexible Budget Flexible Volume Master Variance Budget Variance Budget (1) (2) (3) (4) Variable expenses: (5) (6) Cost of goods sold (7) (8) Sales commissions expense (9) (10) Utility expense Fixed expenses: (11) (12) Salary expense (13) (14) Depreciation expense (15) (16) Rent expense (17) (18) Utility expense (19) (20) Total expenses (21) (22) Operating income Requirement 2. What accounts for most of the difference between actual operating income and master budget operating income? The (23) for operating income is larger than the (24). master budget operating income and actual operating income resulted from (25). expected. Most of the difference between bubble kits than Requirement 3. What is Blowing Bubbles' master budget variance for operating income? Explain why the income statement performance report provides Blowing Bubbles' managers with more useful information than the simple master budget variance. What insights can Blowing Bubbles' managers draw from this performance report? is Blowing Bubbles master budget variance for operating income than expected. (27) This means that operating income (26) Choose two reasons why the income statement performance report provides Blowing Bubbles' managers with more information than the simple master budget variance. (28) (29) These variances suggest that the marketing department did a (30). job by selling (31). than expected, at a (32). sale price than expected 1: Data Table Blowing Bubbles, Inc. Income Statement Month Ended October 31 Sales revenue.. $ 192.500 Variable expenses Cost of goods sold $ 75.250 Sales commissions 18.100 Utility expense 6,000 Fixed expenses: Salary expense 32,200 Depreciation expense 20,000 Rent expense 14,450 7,000 Utility expense 173,000 Total expenses.. $ 19,500 Operating income 2: Data Table Flexible Budget Income Statement Month Ended October 31 Flexible Budget per Output Unit Output Units (Kits) 55,000 60,000 65,000 $ 3.10 $170,500 $ 186,000 $201,500 Sales revenue Variable expenses: Cost of goods sold 1.25 68,750 75,000 81,250 Sales commissions 0.25 13,750 15,000 16.250 Utility expense 0.10 5,500 6,000 6,500 Fixed expenses: Salary expense 30,000 30,000 33,000 Depreciation expense 20,000 20,000 23,000 Rent expense 15,000 15,000 19,000 7,000 Utility expense 7,000 7,000 Total expenses $ 160,000 $ 168,000 $ 186,000 $ 10,500 $ 18,000 $ 15,500 Operating income 3: Requirements 1. Prepare an income statement performance report for October. Note: The master budget was based on expected sales volume of 55,000 bubble kits. 2. What accounts for most of the difference between actual operating income and master budget operating income? 3. What is Blowing Bubbles' master budget variance for operating income? Explain why the income statement performance report provides Blowing Bubbles' managers with more useful information than the simple master budget variance. What insights can Blowing Bubbles' managers draw from this performance report? (1) O OF (2) O (3) O (4) O OF OF (5) O OF (6) O (7) O OF OF U U U U (9) (10) O (11) O (12) O (13) O (14) O (15) O F F OF OF OF OF OF OU U OU OU OU OU OU (16) O (17) O (18) O (19) O (20) O (21) O (22) O OF OF OF F OF OU OU U OU OU 000 (23) O favorable flexible budget variance favorable volume variance 0000 unfavorable flexible budget variance unfavorable volume variance (24) favorable flexible budget variance O favorable volume variance (25) selling 5,000 less (26) O O selling 5,000 more selling 60,000 less selling 60,000 more favorable unfavorable O unfavorable flexible budget variance unfavorable volume variance (27) O O higher lower (28) (29) 0000 A favorable sales revenue flexible budget variance means the sale price was higher. A favorable volume variance reveals whether profits increased due to less units being sold. A favorable volume variance reveals whether profits increased due to more units being sold. An unfavorable sales revenue flexible budget variance means the sale price was higher, A favorable sales revenue flexible budget variance means the sale price was higher. A favorable volume variance reveals whether profits increased due to less units being sold. OA favorable volume variance reveals whether profits increased due to more units being sold. An unfavorable sales revenue flexible budget variance means the sale price was higher. (30) 00 good (31) fewer (32) higher poor more lower
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