P10-43A Problems Group A P10-43A Prepare a budget with different volumes for pla
ID: 2512860 • Letter: P
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P10-43A
Problems Group A P10-43A Prepare a budget with different volumes for planning (Learning Objective 5) Outrageous Bubbles, Inc., produces multicolored bubble solution used for weddings and other events. The company's master budget income statement for March follows. It is based on expected sales volume of 55,000 bubble kits. OUTRAGEOUS BUBBLES, INC. Master Budget Income Statement Month Ended March 31 Sales revenu.. Variable expenses: $170,500 Cost of goods sold. Sales commissions Utility expense. 68,750 13.750 5,500 Fixed expenses: Salary expensc Depreciation expense Rent expense. Utility expense.. 30,000 20,000 15,000 7.000 $160,000 S 10,500 Total expenses. Operating income. Outrageous Bubbles plant capacity is 62,500 kits. If actual volume exceeds 62,500 kits, the company must expand the plant. In that case, salaries will increase by 10%, depreciation by 15%, and rent by $4,000. Fixed utilities will be unchanged by any volume increase Requirements 1. Prepare flexible budget income statements for the company, showing 2. Graph the behavior of the company's total costs. Use total costs on the y 3. Why might Outrageous Bubbles' managers want to see the graph you output levels of 55,000, 60,000, and 65,000 kits. axis and volume (in thousands of bubble kits) on the a-axis. prepared in Requirement 2 as well as the columnar format analysis in Requirement 1? What is the disadvantage of the graphic approach?Explanation / Answer
Flexible Budget Particulars 55000 60000 65000 Sales 1,70,500 1,86,000 2,01,500 Variable Expense: Cost of goods sold 68,750 75,000 81,250 Sales commission 13,750 15,000 16,250 Utility Expenses 5,500 6,000 6,500 Fixed Expense: Salary Expense 30,000 30,000 33,000 Depreciation 20,000 20,000 23,000 Rent 15,000 15,000 19,000 Utility 7,000 7,000 7,000 Total Expenses 1,60,000 1,68,000 1,86,000 Operating Income 10,500 18,000 15,500 The main purpose to see the graph is to find out how the cost changes with the change in Volume. The main purpose of preparing flexible budget is to find out the optimum level at which the operating income is maximum The disadvantage of graphical approach is that it is not considering the operating profit, therefore, it may mislead in decision making
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