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.)

Creative Bubbles, Inc.
Income Statement Performance Report
For the month ended July 31
	Actual	Flexible Budget		Flexible	Volume		Master
		Variance		Budget	Variance		Budget
Output units			(1)			(2)
Sales revenue			(3)			(4)
Variable expenses:
Cost of goods sold			(5)			(6)
Sales commissions expense			(7)			(8)
Utility expense			(9)			(10)
Fixed expenses:
Salary expense			(11)			(12)
Depreciation expense			(13)			(14)
Rent expense			(15)			(16)
Utility expense			(17)			(18)
Total expenses			(19)			(20)
Operating income			(21)			(22)

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).

Most of the difference between master budget operating income and actual operating income resulted from (25) bubble kits than expected.

Requirement 3. What is Creative Bubbles' master budget variance? Explain why the income statement performance report provides Creative Bubbles' managers with more useful information than the simple master budget variance. What insights can Creative Bubbles' managers draw from this performance report?

Creative Bubbles' master budget variance is $ (26)			, meaning that its operating income is (27) than expected.

Choose two reasons why the income statement performance report provides Creative 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) kits than expected, at a (32) sale price than expected.

1: Data Table 188,500 Creative Bubbles, Inc. Income Statement Month Ended July 31 Sales revenue .. $ Variable expenses: Cost of goods sold Sales commissions Utility expense Fixed expenses: Salary expense Depreciation expense Rent expense 75,900 16,000 6,000 32,200 20,000 5,250 7,000 Utility expense Total expenses ........... $ 162,350 $ 26,150 Operating income ............ 2: Data Table Creative Bubbles, Inc. Flexible Budget Income Statement Month Ended July 31 Flexible Budget per Output Unit Output Units (Kits) 55.000 60.000 65.000 $ 3.00 $ 165,000 $ 180,000 $ 195,000 Sales revenue Variable expenses: Cost of goods sold Sales commissions Utility expense 1.25 0.25 68,750 13,750 5,500 75,000 15,000 6,000 81,250 16,250 6,500 0.10 Fixed expenses Salary expense Depreciation expense Print 30,000 20,000 6,000 7,000 30,000 20,000 6,000 7,000 33,000 23,000 10,000 7,000 Rent expense Utility expense Total expenses $ 151,000 $ 159,000 $ 177,000 $ 14,000 $ 21,000 $ 18,000 Operating income 3: Requirements 1. Prepare an income statement performance report for July. 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 Creative Bubbles' master budget variance? Explain why the income statement performance report provides Creative Bubbles' managers with more useful information than the simple master budget variance. What insights can Creative Bubbles' managers draw from this performance report? .. (1) O (2) (3) O (4) (6) O (7) O (8) O OF O OF ou F (5) O OF ou (9) O OF ou (10) o OF ou ou ou ou ou ou ou (11) O (12) O OF OU (13) O OF (14) O OF ou OF (15) O OF ou (16) O OF ou (17) O OF (18) O OF (19) O OF OU OU (20) O OF ou (21) O OF ou (22) O OF ou (23) O O O favorable flexible budget variance favorable volume variance unfavorable flexible budget variance unfavorable volume variance (24) O O O O favorable flexible budget variance favorable volume variance unfavorable flexible budget variance unfavorable volume variance (25) selling 5,000 less selling 5,000 more selling 60,000 less selling 60,000 more (26) O O favorable O unfavorable (27) O O higher O lower O O (28) O O A favorable sales revenue flexible budget variance means the sale price was higher. O A favorable volume variance reveals whether profits increased due to less units being sold. O 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. (29) O O A favorable sales revenue flexible budget variance means the sale price was higher. O A favorable volume variance reveals whether profits increased due to less units being sold. O A favorable volume variance reveals whether profits increased due to more units being sold. O An unfavorable sales revenue flexible budget variance means the sale price was higher. (30) O good O poor (31) O fewer more (32) higher lower