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ReelTime distributes DVDs to movie retailers, including dot-coms.




ReelTime distributes DVDs to movie retailers, including dot-coms. ReelTime?s top management meets monthly to evaluate the company?s performance. Controller Terri Lon prepared the following performance report for the meeting.;REELTIME, INC.;Income Statement Performance Report;Month Ended July 31, 2007 Actual Results Static Budget Variance;Sales Revenue $1,640,000 $1,960,000 $320,000 F;Variable Costs;Variable Costs: 773,750 980,000 206,250 F;Sales Commissions 77,375 107,800 30.425 F;Shipping Expense 42,850 53,900 11,050 F;Total Variable Costs 893,975 1,141,700 247,725 F;Fixed Costs;Salary Expense 311,450 300,500 10,950 U;Depreciation Expense 208,750 214,000 5,250 F;Rent Expense 128,250 108,250 20,000 U;Advertising Expense 81,100 68,500 12,600 U;Total Fixed Costs 729,550 691,250 38,300 U;Total Expenses 1,623,525 1,832,950 209,425 F;Operating Income $ 16,475 $ 127,050 $110,575 U;Lon also revealed that the actual sales price of $20 per movie was equal to the budgeted sales price and that there were no changes in inventories for the month.;Management is disappointed by the operating income results. CEO Lyle Nesbitt exclaims, ?How can actual operating income be roughly 13% of the static budget amount when there are so many favorable variances??;Requirements;1. Prepare a more informative performance report. Be sure to include a flexible budget for the actual number of DVDs bought and sold.;2. As a member of ReelTime?s management team, which variances would you want investigated? Why?;3. Nesbit believes that many consumers are postponing purchases of new movies until after the introduction of a new format for recordable DVD players. In light of this information, how would you rate the company?s performance?;Your


Paper#26424 | Written in 18-Jul-2015

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