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Happy Bubbles, Inc. produces multicolored bubble solution used for weddings and other events. The company sold 70,000 bubble kits during May, and its actual operating income was as follows: (Click the icon to view the actual income statement.) The company's flexible budget income statement for May follows: (Click the icon to view the flexible budget income statement.) CELLER Requirement 1. Prepare the income statement performance report. Note: The master budget was based on expected sales volume of 65,000 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.) Data table Happy Bubbles, Inc. Income Statement Month Ended May 31 Sales revenue Variable expenses: Cost of goods sold Sales commissions Utility expense Salary expense Depreciation expense Rent expense Utility expense Fixed expenses: Total expenses Operating income Print ***** **** ...... ****** $ $ $ Done 210,500 88,000 24,000 3,500 32,300 20,000 6,950 6,000 180,750 29,750 X Data table Sales revenue Variable expenses: Cost of goods sold Sales commissions Utility expense Fixed expenses: Happy Bubbles, Inc. Flexible Budget Income Statement Month Ended May 31 Flexible Budget per Output Unit Salary expense $ Print 2.90 1.25 0.30 0.05 Output Units (Kits) 70,000 75,000 203,000 $217,500 87,500 93,750 21,000 22,500 3,500 3,750 30,000 33,000 65,000 $ 188,500 $ 81,250 19,500 3,250 30,000 - X Done Output units Sales revenue Variable expenses: Cost of goods sold Sales commissions expense Utility expense Fixed expenses: Salary expense Depreciation expense Rent expense Utility expense Total expenses Operating income Happy Bubbles, Inc. Income Statement Performance Report For the month ended May 31 Flexible Budget Flexible Variance Budget Actual Volume Variance Master Budget Requirement 2. What accounts for most of the difference between actual operating Income and master budget operating income? The for operating income is larger than the Most of the difference between master budget operating income and actual operating income resulted from bubble kits than expected. Requirement 3. What is Happy Bubbles' master budget variance for operating income? Explain why the income statement performance report provides Happy Bubbles' managers with more useful information than the simple master budgeifvariance. What insights can Happy Bubbles' managers draw from this performance report? Happy Bubbles' master budget variance for operating income is This means that operating income is than expected. Choose two reasons why the income statement performance report provides Happy Bubbles' managers with more information than the simple master budget variance. These variances suggest that the marketing department did a job by selling kits than expected, at a sale price than expected. Data table Sales revenue Variable expenses: Happy Bubbles, Inc. Flexible Budget Income Statement Month Ended May 31 Flexible Budget per Output Unit 2.90 Cost of goods sold Sales commissions Utility expense Fixed expenses: Salary expense Depreciation expense Rent expense Utility expense Total expenses Operating income $ Print 1.25 0.30 0.05 Output Units (Kits) 70,000 65,000 $ 188,500 $ 81,250 19,500 3,250 30,000 20,000 8,000 6,000 $ 168,000 $ $ 20,500 $ Done 75,000 203,000 $ 217,500 87,500 93,750 21,000 22,500 3,500 3,750 30,000 33,000 20,000 23,000 8,000 12,000 6,000 6,000 176,000 $ 194,000 27,000 $ 23,500 X
