Question

Outrageous ?Bubbles' plant capacity is 52,500 kits. If actual volume exceeds 52,500 ?kits, the company must expand the plant. In that? case, salaries will increase by? 10%, depreciation by? 15%, and rent by $5,000. Fixed utilities will be unchanged by any volume increase.

Requirements

1. Prepare flexible budget income statements for the? company, showing output levels of 45,000?,

50,000?, and 55,000 kits.

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.

3. Why might Outrageous ?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?

DATA TABLE:

Outrageous Bubbles, Inc.
Master Budget Income Statement
Month Ended January 31
Sales revenue	$137,250
Variable expenses:
Cost of goods sold	$56,250
Sales commissions	6,750
Utility expense	9,000
Fixed expenses:
Salary expense	30,000
Depreciation expense	20,000
Rent expense	10,000
Utility expense	4,000
Total expenses	$136,000
Operating income	$1,250

Answer 1