The company's master budget income statement for October follows. It is based on expected sales volume of 65,000 Requirements bubble kits 1. Prepare flexible budget Income statements for the company, showing output levels of 65,000, 70,000, and 75,000 kits. Great Bubbles, Inc. 2. Graph the behavior of the company's total costs. Use total costs on the y-axis and volume Master Budget Income Statement (in thousands of bubble kits) on the x-axis. 3. Why might Great Bubbles managers want to see the graph you prepared in Requirement 2 Month Ended October 31 as well as the columnar format analysis in Requirement 1? What is the disadvantage of the Sales revenue... $ 201,500 graphic approach? Variable expenses: Cost of goods sold ......$ 81,250 Sales commissions 13,000 Utility expense 9,750 Fixed expenses: Salary expense 33,000 Depreciation expense 18,000 Rent expense 9,000 Utility expense 3,000 Total expenses $ 167,000 $ 34,500 Operating income Requirement 1. Prepare flexible budget income statements for the company showing output levels of 65,000, 70,000, and 75,000 kits. (Enter the per unit information to two decimal places.) Great Bubbles, Inc. Flexible Budget Income Statement Month Ended October 31 Flexible Budget per Output Unit Output Units (Kits) 65,000 70.000 75.000 Sales revenue Variable expenses: Cost of goods sold Sales commissions Utility expense Fixed expenses Salary expense Depreciation expense Rent expense Utility expense Total expenses Operating income (After you hit continue the screen may take you below the beginning of the next step. If so, scroll back up to the top of the step) Requirement 2. Graph the behavior of the company's total costs. Use total costs on the y-axis and volume (in thousands of bubble kits) on the x-axis. Begin by plotting the total costs for volume levels of 65,000, 70,000, and 75,000 kits. (Enlarge the graph to medium size and use the point tool button displayed to draw the graph.) (After you hit continue the screen may take you below the beginning of the next step. If so, scroll back up to the top of the step.) Graph the flexible budget total cost line for Great Bubbles Due to the different costs at the volume level of 72.500 there will be two total cost lines-one line is used for quantities up to 72,500 and the other is used for quantities above 72,500. When drawing the line for the quantities above 72,500, be sure to plot one point of the line at 0 quantity and at the fixed cost including the plant expansion. Then the next point of the line is for the quantity 75,000 and the total cost associated with this quantity. (Enlarge the graph to medium size and use the line tool button displayed to draw the graph.) Requirement 3. Why might Great Bubbles managers want to see the graph you prepared in Requirement 2 as well as the columnar format analysis in Requirement 1? What is the disadvantage of the graphic approach? The advantage of the graph in the previous step is that Great Bubbles' managers can look at the graph to estimate three levels shown in the columnar format in the first step. The disadvantage of the graph is that looking at the graph provides at any output level 75,000 bubble kits, not just the of the budgeted cost
