Problem 08-1A Preparing and analyzing a flexible budget LO P1, A1 [The following information applies to the questions displayed
below.] Phoenix Company’s 2019 master budget included the following fixed budget report. It is based on an expected production and sales volume of 15,000 units. PHOENIX COMPANY Fixed Budget Report For Year Ended December 31, 2019 Sales $ 3,150,000 Cost of goods sold Direct materials $ 945,000 Direct labor 225,000 Machinery repairs (variable cost) 45,000 Depreciation—Plant equipment (straight-line) 315,000 Utilities ($60,000 is variable) 180,000 Plant management salaries 200,000 1,910,000 Gross profit 1,240,000 Selling expenses Packaging 90,000 Shipping 105,000 Sales salary (fixed annual amount) 235,000 430,000 General and administrative expenses Advertising expense 150,000 Salaries 230,000 Entertainment expense 80,000 460,000 Income from operations $ 350,000 Problem 08-1A Part 1&2 Required: 1&2. Prepare flexible budgets for the company at sales volumes of 14,000 and 16,000 units and classify all items listed in the fixed budget as variable or fixed.
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Answer:
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Explanation:
Phoenix Company
Fixed Budget Report
For the 'fear Ended 31st December 2015
Flexible Budget Flexible Budget for
Variable Amount Total Fixed Unit Sales Unit Sales
per unit cost of 14,000 of 16,000
Sales at 210 $ per unit (A) 210 2940000 3360000
Variable cost
Direct Material $ 62.00 $868,000.00 $ 992,000.00
Direct Labor $ 14.00 $196,0000.00 $ 224,000.00
Machinery repairs $ 3.00 $ 42,000.00 $ 48,000.00
Utilities $ 2.00 $ 28,000.00 $ 32,000.00
Packaging $ 6.00 $ 84,000.00 $ 96,000.00
Shipping $ 6.00 $ 84,000.00 $ 96,000.00
Total Variable Expenses (B) $ 93.00 $1,302,000.00 $1,488,000.00
Contribution margin (C=A-B) $ 117.00 $ 1,638,000.00 $ 1,872,000.00
Fixed cost
Depreciation $ 315,000.00 $315,000.00 $ 315,000.00
Plant Management Salaries $ 210,000.00 $210,000.00 $ 210,000..
Utilities $ 180,000.00 $ 180,000.00 $ 180,000.00
Sales Salary $ 235,000.00 $ 235,000.00 $ 235,000.00
Advertising Expenses $ 100,000.00 $ 100,000.00 $ 100,000.00
Salaries $ 241,000.00 $ 241,000.00 $ 241,000.00
Entertainment Expenses $ 85,000.00 $ 85,000.00 $ 85,000.00
Total Fixed Expenses (D) $1,366,000.00 $1,366,000.00 $ I,366,000.00
Net Profit (C-D) $ 272,000.00 $ 506,000.00
Variable Cost Per unit= Variable Cost / 150000
Increase in Operating Income if Sales rise to 18000
Phoenix Company
Forecast contribution Margin Income Statement
For the year Ended 31st December 2015
Sales in Units 15,000 18,000
Contribution Margin Per Unit $ 117 $ 117
Contribution Margin $ 1,755,000 $2,106,000
Fixed Costs $ 1,366,000 $ 1,366,000
Expected increase in Operating Income $ 389,000 $ 740,000
$ 351,000
Income (loss) from operation sale is reduced to 12000
Phoenix company
Forecast contribution Margin Income Statement
For the year Ended 31st December 2015
Sales in Units 15,000 12,000
Contribution Margin Per Unit $ 117 $ 117
Contribution Margin $ 1,755,000 $1,404,000
Fixed Costs $ 1,366,000 $ 1,366,000
Operating Income $ 389,000 $ 38,000
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