ith different volumes for planning Learsind Objective 5) Outrageous Bubbles, Inc
ID: 2574506 • Letter: I
Question
ith different volumes for planning Learsind Objective 5) Outrageous Bubbles, Inc, produces multicolored bubble solution used for weddings and other events. The company's master budget income statement March follows. It is based on expected sales volume of 55,000 bubble kits. for OUTRAGEOUS BUBBLES, INC Master Budget Income Statement Month Ended March 31 Sales revenue Variable expenses: $170,500 Cost of goods sold Sales commissions Unlity expense S 68,750 13,750 5,500 Fixed expenses: Salary expense 30,000 20,000 15,000 Rent expense Urility expense Total expenses Operating $160,000 S 10500 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 %, 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 output levels of 55,000, 60,000, and 65,000 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-ais. 3. Why might Outrageous Bubbles managers want to see the graph prepared in Requirement 2 ss well as the columnar format analysis in Requirement 1? What is the disadvantage of the graphic approach?Explanation / Answer
OUTRAGIOUS BUBBLES INC Flexible Budget Income statement Units 55000 60000 65000 Particular Per Unit Sales Revenue 3.1 170500 186000 201500 Variable expenses Cost of goods sold 1.25 68750 75000 81250 Selling Commission 0.25 13750 15000 16250 Utility Expense 0.1 5500 6000 6500 Total Variable Expenses 88000 96000 104000 Contribution =Sales-Variable expenses 82500 90000 97500 Fixed Expenses Salary Expense 30000 30000 33000 Depreication Expense 20000 20000 23000 Rent Expense 15000 15000 19000 Utility Expense 7000 7000 7000 Total Fixed Expenses 72000 72000 82000 Operating Income =Contribution-Fixed Expenses 10500 18000 15500 Y Behavious of total cost on graph Total cost 160000 168000 186000 200000 160000 Total cost 120000 80000 40000 X 150000 30000 45000 60000 75000 He probably interested in CVP i.e Cost Volume profit analysis. He is interested to see how cost is varying with change in units of production Disadvantages of graphic method are as follow 1 Complex and not error free 2 Very technical 3 costly 4 time consuming
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