Problem:
Preparing an income statement performance report AllTalk Technologies manufactures capacitors for cellular base stations and other communications applications. The company's January 2012 flexible budget income statement shows output levels of 6,500, 8,000, and 10,000 units. The static budget was based on expected sales of 8,000 units.
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ALLTALK TECHNOLOGIES
Flexible Budget Income Statement
Month Ended January 31, 2012
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Per Unit
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BY Units (Capacitors)
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6,500
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8,000
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10,000
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Sales revenue
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$24
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$ 156,000
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$ 192,000
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$ 240,000
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Variable expenses
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$10
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65,000
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80,000
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100,000
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Contribution margin
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$ 91,000
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$ 112,000
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$ 140,000
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Fixed expenses
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53,000
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53,000
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53,000
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Operating income
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$ 38,000
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$ 59,000
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$ 87,000
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The company sold 10,000 units during January, and its actual operating income was as follows:
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ALLTALK TECHNOLOGIES
Income Statement
Month Ended January 31, 2012
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Sales revenue
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$ 246,000
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Variable expenses
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104,500
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Contribution margin
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$ 141,500
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Fixed expenses
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54,000
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Operating income
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$ 87,500
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Requirements
1. Prepare an income statement performance report for January.
2. What was the effect on AllTalk's operating income of selling 2,000 units more than the static budget level of sales?
3. What is AllTalk's static budget variance? Explain why the income statement performance report provides more useful information to AllTalk's managers than the simple static budget variance. What insights can AllTalk's managers draw from this performance report?