Movies Galore distributes DVDs to movie retailers,including dot.coms.Movies Galore’s top management meets monthly to evaluate the company’s performance.Controller Allen Walsh prepared the following performance report for the meeting:

Movies Galore

Income statement Performance Report

Month Ended July 31,2012

Actual results Static budget Variance

Sales revenue $1,640,000 1,960,000 320,000U

Variable cost:

cost of good sold 775,000 980,000 205,000F

sales commission 77,000 107,800 30,800F

shipping cost 43,000 53,900 10,900F

Fixed costs:

salary cost 311,000 300,500 10,500U

depreciation cost 209,000 214,000 5,000F

rent cost 129,000 108,250 20,750U

advertising cost 81,000 68,500 12,500U

Total costs 1,625,000 1,832,950 207,950F

Operating income $15,000 127,050 112,050U

Walsh also revealed that the actual sale price of $20 per movie was equal to the budgeted sale price and that there were no changes in inventories for the month.

Management is disappointed by the operating income results. CEO Jilinda Robinson exclaims, How can actual operating income be roughly 12% of the static budget amount when there are so many favorable variances?


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 Movies Galore’s management team, which variances would you want investigated?why?

3. Robinson believes that many consumers are postponting purchases of new movies until after the introduction of a new format for recordable DVD players. In sight of this information, how would you rate the company’s performance?