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NetTech Technologies manufactures capacitors for cellular base stations and other communications applications. The company's July 2018 flexible budget shows output levels of 7500, 9000, and 11000 units. The static budget was based on expected sales of 9000 units. The company sold 11000 units during July. Its flexible budget and actual operating income was as follows

NetTech Technologies

Flexible Budget

For the Month Ended July 31, 2018

Budget Amount per Unit

Units

7,500

9,000

11,000

Sales Revenue

$22

$165,000

$198,000

$242,000

Variable Expenses

12

90,000

108,000

132,000

Contribution Margin

75,000

90,000

110,000

Fixed Expenses

56,000

56,000

56,000

Operating Income

$19,000

$34,000

$54,000

NetTech Technologies

Income Statement

For the Month Ended July 31, 2018

Sales Revenue

$249,000

Variable Expenses

137,000

Contribution Margin

112,000

Fixed Expenses

57,000

Operating Income

$55,000

1.Prepare a flexible budget performance report for July.

2. What was the effect on NetTech's operating income of selling 2,000 units more than the static budget level of sales?

3. What is NetTech's static budget variance for operating income?

4.Explain why the flexible budget performance report provides more useful information to NetTech's managers than the simple static budget variance. What insights can NetTech's managers draw from this performance report?

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