Question
NetTech Technologies manufactures capacitors for cellular base stations and other communications applications. The company's July 2018 flexible budget shows output levels of 7500, 9000, and
NetTech Technologies manufactures capacitors for cellular base stations and other communications applications. The company's July 2018 flexible budget shows output levels of 7500, 9000, and 11000 units. The static budget was based on expected sales of 9000 units. The company sold 11000 units during July. Its flexible budget and actual operating income was as follows
NetTech Technologies
Flexible Budget
For the Month Ended July 31, 2018
Budget Amount per Unit
Units
7,500
9,000
11,000
Sales Revenue
$22
$165,000
$198,000
$242,000
Variable Expenses
12
90,000
108,000
132,000
Contribution Margin
75,000
90,000
110,000
Fixed Expenses
56,000
56,000
56,000
Operating Income
$19,000
$34,000
$54,000
NetTech Technologies
Income Statement
For the Month Ended July 31, 2018
Sales Revenue
$249,000
Variable Expenses
137,000
Contribution Margin
112,000
Fixed Expenses
57,000
Operating Income
$55,000
1.Prepare a flexible budget performance report for July.
2. What was the effect on NetTech's operating income of selling 2,000 units more than the static budget level of sales?
3. What is NetTech's static budget variance for operating income?
4.Explain why the flexible budget performance report provides more useful information to NetTech's managers than the simple static budget variance. What insights can NetTech's managers draw from this performance report?
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