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7. Flowing Bubbles, Inc., produces multicolored bubble solution used for weddings and other events. (Click the icon to view the master budget Income statement) Flowing Bubbles' plant capacity is 72,500 kits. If actual volume exceeds 72,500 lots, the company must expand the plant. In that case, salaries will increase by 10% depreciation by 15% and rent by S4,000. Fixed utilities will be unchanged by any volume increase Print Requirements 1. Prepare flexible budget income statements for the company, showing output levels of 65,000, 70,000, and 75,000 kits. 2. Graph the behavior of the company's total costs. Use total costs on the yaxis and volume (in thousands of bubble kito) on the x-axis. 3. Why might Flowing Bubbles managers want to see the graph you propored in Requirement 2 as well as the columnar format analysis in Requirement 17 What is the disadvantage of the graphic approach? 1: Data Table The company's master budget income statement for October follows. It is based on expected sales volume of 65,000 bubble kits. Flowing Bubbles, Inc. Master Budget Income Statement Month Ended October 31 $ 188,500 Sales revenue. Variable expenses: Cost of goods sold $ 81,250 Sales commissions 19,500 Utility expense 3,250 33,000 Fixed expenses: Salary expense Depreciation expense Rent expense 18,000 .. 15,000 5,000 Utility expense S 175,000 Total expenses 13,500 Operating income Flowing Bubbles, Inc. Flexible Budget Income Statement Month Ended October 31 Flexible Budget per Output Unit Output Units (Kits) 70,000 65,000 75,000 Sales revenue Variable expenses: Cost of goods sold Sales commissions Utility expense Fixed expenses: Salary expense Depreciation expense Rent expense Utility expense Total expenses Operating income Requirement 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. Begin by plotting the total costs for volume levels of 65,000, 70,000, and 75,000 kits. (Enlarge the graph to medium size and use the point tool button displayed to draw the graph.) 220,000 50,000 0 85 Volume in Thousands of Bubble Kite the con motore wu halow the beginning of the next step. If so, scroll back up to the top of the step.) Graph the flexible budget total cost line for Flowing Bubbles. Due to the different costs at the volume level of 72,500 there will be two total cost lines-one line is used for quantities up to 72,500 and the other is used for quantities above 72,500. When drawing the line for the quantities above 72,500, be sure to plot one point the line at O quantity and at the fixed cost including the plant expansion. Then the next point of the line is for the quantity 75,000 and the total cost associated with this quantity. (Enlarge the graph to medium size and use the line tool button displayed to draw the graph) 220,000 Dodan 50.000 0 85 Volume in Thousands of Bubble Kits Requirement 3. Why might Flowing 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? The advantage of the graph in the previous step is that Flowing Bubbles managers can look at the graph to estimate (1) at any output level (2) 85,000 bubble kits, not just the three levels shown in the columnar format in the first step. The disadvantage of the graph is that looking at the graph provides (3) of the budgeted cost

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