Phoenix Company’s 2017 master budget included the following fixed budget report.
ID: 2531420 • Letter: P
Question
Phoenix Company’s 2017 master budget included the following fixed budget report. It is based on an expected production and sales volume of 16,000 units.
PHOENIX COMPANY
Fixed Budget Report
For Year Ended December 31, 2017
Sales
$
3,200,000
Cost of goods sold
Direct materials
$
880,000
Direct labor
160,000
Machinery repairs (variable cost)
48,000
Depreciation—Plant equipment (straight-line)
315,000
Utilities ($32,000 is variable)
182,000
Plant management salaries
230,000
1,815,000
Gross profit
1,385,000
Selling expenses
Packaging
64,000
Shipping
96,000
Sales salary (fixed annual amount)
250,000
410,000
General and administrative expenses
Advertising expense
126,000
Salaries
241,000
Entertainment expense
100,000
467,000
Income from operations
$
508,000
Phoenix Company’s actual income statement for 2017 follows.
PHOENIX COMPANY
Statement of Income from Operations
For Year Ended December 31, 2017
Sales (19,000 units)
$
3,878,000
Cost of goods sold
Direct materials
$
1,061,000
Direct labor
199,000
Machinery repairs (variable cost)
49,000
Depreciation—Plant equipment (straight-line)
315,000
Utilities (fixed cost is $147,500)
184,750
Plant management salaries
241,000
2,049,750
Gross profit
1,828,250
Selling expenses
Packaging
73,750
Shipping
106,500
Sales salary (annual)
268,000
448,250
General and administrative expenses
Advertising expense
134,000
Salaries
241,000
Entertainment expense
103,500
478,500
Income from operations
$
901,500
Required:
1. Prepare a flexible budget performance report for 2017.
PHOENIX COMPANY
Flexible Budget Performance Report
For Year Ended December 31, 2017
Flexible Budget
Actual Results
Variances
Fav. / Unfav.
Sales
$3,200,000
$3,878,000
$678,000
Favorable
Variable costs
Direct materials
880,000
1,061,000
181,000
Direct labor
0
199,000
0
Machinery repairs
0
49,000
0
Utilities
0
0
0
Packaging
0
73,750
0
Shipping
0
106,500
0
Total variable costs
880,000
1,489,250
609,250
Contribution margin
0
0
Fixed costs
Depreciation—Plant equipment (straight-line)
315,000
315,000
0
No variance
Utilities
150,000
147,500
2,500
Favorable
Plant management salaries
230,000
241,000
11,000
Unfavorable
Sales salary
250,000
268,000
18,000
Unfavorable
Advertising expense
126,000
134,000
8,000
Unfavorable
Salaries
241,000
241,000
0
No variance
Entertainment expense
100,000
103,500
3,500
Unfavorable
Total fixed costs
1,412,000
1,450,000
38,000
Income from operations
0
$901,500
---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Required information
[The following information applies to the questions displayed below.]
Alvarez Company’s output for the current period yields a $21,000 favorable overhead volume variance and a $61,800 unfavorable overhead controllable variance. Standard overhead applied to production for the period is $224,000.
Alvarez records standard costs in its accounts. Prepare the journal entry to charge overhead costs to the Work in Process Inventory account and to record any variances.
Journal entry worksheet
· Record overhead applied to production and overhead variances.
Note: Enter debits before credits.
Transaction
General Journal
Debit
Credit
1
Work in process inventory
224,000
Controllable variance
61,800
Volume variance
21,000
Factory overhead
264,800
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Farad, Inc., specializes in selling used SUVs. During the month, the dealership sold 50 trucks at an average price of $9,500 each. The budget for the month was to sell 46 trucks at an average price of $10,000 each.
AQ = Actual Quantity
SQ = Standard Quantity
AP = Actual Price
SP = Standard Price
Compute the dealership’s sales price variance and sales volume variance for the month
Actual Sales
-25000
Flexible Budget
40000
Budgeted Sales
AQ
x
AP
AQ
x
SP
SQ
x
SP
50
x
$9,500
50
x
$10,000
46
x
$10,000
$475,000
$500,000
$460,000
$25,000
15000
$40,000
Sales price variance
25,000
Favor or Unfavor
Sales volume variance
40,000
Favor or Unfavor
Total sales variance
0
Favor or Unfavor
PHOENIX COMPANY
Fixed Budget Report
For Year Ended December 31, 2017
Sales
$
3,200,000
Cost of goods sold
Direct materials
$
880,000
Direct labor
160,000
Machinery repairs (variable cost)
48,000
Depreciation—Plant equipment (straight-line)
315,000
Utilities ($32,000 is variable)
182,000
Plant management salaries
230,000
1,815,000
Gross profit
1,385,000
Selling expenses
Packaging
64,000
Shipping
96,000
Sales salary (fixed annual amount)
250,000
410,000
General and administrative expenses
Advertising expense
126,000
Salaries
241,000
Entertainment expense
100,000
467,000
Income from operations
$
508,000
Explanation / Answer
PHOENIX COMPANY Flexible Budget Performance Report For Year Ended December 31, 2017 Flexible Budget (A) Actual Results (B) Variances Fav. / Unfav. Workings for Column A Sales (19,000 units) $3,800,000 $3,878,000 $78,000 Favorable (3200000/16000)*19000 Variable costs (Amount/Sales Unit) in Fixed Budget*Actual Sales Unit Direct materials $10,45,000 $10,61,000 $16,000 Unfavorable (880000/16000)*19000 Direct labor $1,90,000 $1,99,000 $9,000 Unfavorable (160000/16000)*19000 Machinery repairs $57,000 $49,000 $8,000 Favorable (48000/16000)*19000 Utilities (variable part) $38,000 $37,250 $750 Favorable (32000/16000)*19000 Packaging $76,000 $73,750 $2,250 Favorable (64000/16000)*19000 Shipping $1,14,000 $1,06,500 $7,500 Favorable (96000/16000)*19000 Total variable costs $15,20,000 $15,26,500 $6,500 Unfavorable Contribution margin $22,80,000 $23,51,500 $71,500 Favorable Sales – Total Variable cost Fixed costs Depreciation—Plant equipment (straight-line) $3,15,000 $3,15,000 $0 No variance Utilities (fixed cost) $1,50,000 $1,47,500 $2,500 Favorable Plant management salaries $2,30,000 $2,41,000 $11,000 Unfavorable Sales salary $2,50,000 $2,68,000 $18,000 Unfavorable Advertising expense $1,26,000 $1,34,000 $8,000 Unfavorable Salaries $2,41,000 $2,41,000 $0 No variance Entertainment expense $1,00,000 $1,03,500 $3,500 Unfavorable Total fixed costs $14,12,000 $14,50,000 -$38,000 Unfavorable Income from operations $8,68,000 $9,01,500 $33,500 Favorable Contribution Margin – Total Fixed Costs