Explanation:
The preparation of the following flexible budget for that level of activity is presented below:
Puget Sound Divers
Flexible Budget
For the Month Ended May 31
Sales revenue $112,800 ($470 × 240 diving hours)
Less:
Wages and salaries $42,040 ($11,800 + $126.00 × 240 diving hours)
Supplies $1,200 (240 diving hours × $5)
Equipment rental $8,160 ($2,400 + $24 × 240 diving hours)
Insurance $3,800
Miscellaneous $860 ($500 + $1.50 × 240 diving hours)
Total expenses $56,060
Net operating income $56,740