Erick Manufacturing Company established the following standard price and cost in
ID: 2481221 • Letter: E
Question
Erick Manufacturing Company established the following standard price and cost information:
Erick expected to produce and sell 10,000 units. Actual production and sales amounted to 9,500 units.
Required:
a) Prepare the pro forma income statement in contribution format that would appear in Erick's master budget for the year (based on the planned level of activity).
b) Prepare the pro forma income statement in contribution format that would appear in Erick's flexible budget (based on the actual level of activity).
Explanation / Answer
Solution:
a) pro forma income statement in contribution format that would appear in Erick's master budget for the year
Proforma Income Statement
Master Budget
Contribution Format
Expected Production and Sell (Units)
10,000
Sales Revenue
500000
Less: Variable Manufacturing Cost
320000
Contribution Margin
180000
Less: Fixed Costs:
Fixed manufacturing cost
$100,000
Fixed selling and administrative cost
$40,000
Total Fixed Costs
$140,000
Operating Profit (Loss)
(Contribution margin - Fixed Cost)
$40,000
b) Pro forma income statement in contribution format that would appear in Erick's flexible budget
Proforma Income Statement
Flexible Budget (Actual Basis at Standard Cost)
Contribution Format
Actual Production and Sell (Units)
9,500
Sales Revenue (9,500 x 50)
475000
Less: Variable Manufacturing Cost (9,500 x 32)
304000
Contribution Margin
171000
Less: Fixed Costs:
Fixed manufacturing cost
$100,000
Fixed selling and administrative cost
$40,000
Total Fixed Costs
$140,000
Operating Profit (Loss)
(Contribution margin - Fixed Cost)
$31,000
Proforma Income Statement
Master Budget
Contribution Format
Expected Production and Sell (Units)
10,000
Sales Revenue
500000
Less: Variable Manufacturing Cost
320000
Contribution Margin
180000
Less: Fixed Costs:
Fixed manufacturing cost
$100,000
Fixed selling and administrative cost
$40,000
Total Fixed Costs
$140,000
Operating Profit (Loss)
(Contribution margin - Fixed Cost)
$40,000
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