Phoenix Company’s 2017 master budget included the following fixed budget report.
ID: 2552702 • 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 15,000 units.
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.
Fixed Budget Report
For Year Ended December 31, 2017 Sales $ 3,300,000 Cost of goods sold Direct materials $ 945,000 Direct labor 210,000 Machinery repairs (variable cost) 60,000 Depreciation—Plant equipment (straight-line) 315,000 Utilities ($30,000 is variable) 210,000 Plant management salaries 190,000 1,930,000 Gross profit 1,370,000 Selling expenses Packaging 75,000 Shipping 90,000 Sales salary (fixed annual amount) 235,000 400,000 General and administrative expenses Advertising expense 125,000 Salaries 241,000 Entertainment expense 80,000 446,000 Income from operations $ 524,000
Explanation / Answer
Answer:
1
Amount per unit
Variable or Fixed Classification
Variable sales (total divided by 15,000 units)
Sales
$220.00
Variable costs (total divided by 15,000 units)
Direct materials
$63.00
Direct labor
14
Machinery repairs
4
Utilities ($30,000 variable)
2
Packaging
5
Shipping
6
Total variable costs
$94.00
Fixed costs
Depreciation—Plant equipment
$315,000
Utilities ($210,000 - $30,000 variable)
180,000
Plant management salaries
190,000
Sales salary
235,000
Advertising expense
125,000
Salaries
241,000
Entertainment expense
80,000
Total fixed costs
$1,366,000
_______________________________________
2
PHOENIX COMPANY
Flexible Budgets
For Year Ended December 31, 2017
Flexible Budget
Flexible
Flexible
Variable Amount
Total
Budget for Unit Sales
Budget for Unit Sales
per Unit
Fixed
of 14,000
of 16,000
Cost
Sales
$220.00
$2,800,000
$3,200,000
Variable costs
Direct materials
$63.00
910,000
1,040,000
Direct labor
$14.00
210,000
240,000
Machinery repairs
$4.00
56,000
64,000
Utilities
$2.00
42,000
48,000
Packaging
$5.00
70,000
80,000
Shipping
$6.00
98,000
112,000
Total variable costs
$94.00
1,386,000
1,584,000
Contribution margin
$126.00
$1,414,000
$1,616,000
Fixed costs
Depreciation—Plant Equip
$315,000
315,000
315,000
Utilities
$180,000
180,000
180,000
Plant mgmt. salaries
$190,000
190,000
190,000
Sales salary.
$235,000
235,000
235,000
Advertising expense
$125,000
125,000
125,000
Salaries
$241,000
241,000
241,000
Entertainment expense
$80,000
80,000
80,000
Total fixed costs
$1,366,000
$1,366,000
$1,366,000
Income from operations
$58,000
$260,000
Amount per unit
Variable or Fixed Classification
Variable sales (total divided by 15,000 units)
Sales
$220.00
Variable costs (total divided by 15,000 units)
Direct materials
$63.00
Direct labor
14
Machinery repairs
4
Utilities ($30,000 variable)
2
Packaging
5
Shipping
6
Total variable costs
$94.00
Fixed costs
Depreciation—Plant equipment
$315,000
Utilities ($210,000 - $30,000 variable)
180,000
Plant management salaries
190,000
Sales salary
235,000
Advertising expense
125,000
Salaries
241,000
Entertainment expense
80,000
Total fixed costs
$1,366,000