Chapter 23-Flexible Budgets and Standard Costs Whidbey Co. fixed budget for the

Question

Chapter 23-Flexible Budgets and Standard Costs Whidbey Co. fixed budget for the year is shown below: $1,300,000 Cost of goods sold: Direct materials $150,000 450,000 240,000 Overhead (includes $2 per unit variable 840,000 S 460,000 Selling expenses Sales commissions (all variable) ._ Rent (all fixed) Insurance (all fixed) General and administrative expenses: Salaries (all fixed) . .. . Rent (all fixed) 60,000 40,000 35,000 72,000 54,000 31.000 292,000 Net income from operations . . Prepare a flexible budget for Whidbey Co. that shows a detailed budget for its actual sales volume of 42,000 units. Use the contribution margin format

Explanation / Answer

Variable Overhead given in the budget = 50,000 units*$2 = $100,000

Fixed Overhead = Total Overhead in Cost of Goods Sold - Variable Overhead

= $240,000 - $100,000 = $140,000   

  Flexible Budget for Whidbey Co. for 42,000 units (Amounts in $)

Sales [($1,300,000/50,000 units)*42,000 units] 1,092,000 Less: Variable Costs Direct Materials [($150,000/50,000 units)*42,000 units] (126,000) Direct Labor [($450,000/50,000 units)*42,000 units] (378,000) Variable Overhead (42,000 units*$2 per unit) (84,000) Sales Commissions [($60,000/50,000 units)*42,000 units] (50,400) Contribution Margin 453,600 Less: Fixed Costs Fixed Manufacturing Overhead (140,000) Fixed Selling Expenses ($40,000+$35,000) (75,000) Fixed General and Administrative Expenses ($72,000+$54,000+$31,000) (157,000) Net Income from Operations 81,600

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