Required information Problem 23-1A Preparation and analysis of a flexible budget

Question

Required information Problem 23-1A Preparation and analysis of a flexible budget LO P1 The foowing information appies to the questions displayed below. 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 unts. Fixed Budget Report For Year Ended December 31, 2017 $3,150, 000 Sales Cost of goods sold Direct materiala Direct labor Machinery repairs (variable cost) $915,000 Depreciation-Plant equipment (straight-line) Utilities ($60, 000 is variable) Plant management salaries 240,000 60,000 315,000 195,000 200,000 1,925,000 1,225,000 s profit Packaging Sales salary (fixed annual Gross 75,000 105,000 235,000 415,000 anount) General and administrative expenacs Advertising expense Salaries 150,000 241,000 90,000 481,000 $ 329,000 Entertainment expense Income from operations Problem 23-1A Part 3 3. The company's business conditions are improving. One possible resuit is a sales volume of 18,000 units. The company president is contident that this volume is within the relevant range of existing capacity. How much would operating Income Increase over the 2017 budgeted amount of $329,000 if this level Is reached without Increasing COMPAN n Margin Income Statement Forecasted Year E Sales (in units 15,00018,000 Contribution Fixed costs Operating income

Explanation / Answer

PHOENIX COMPANY Forcasted Contribution Margin Income Statement For year Ended Decemeber 31, 2017 Sales in Units 15000 Unit 18000 Unit Sales (a) $3,150,000 $3,780,000 Variable Cost Direct Material $915,000 $1,098,000 Direct Labour $240,000 $288,000 Machinery Repair $60,000 $72,000 utilities $60,000 $72,000 Packing $75,000 $90,000 Shipping $105,000 $126,000 Total Variable Cost (b) $1,455,000 $1,746,000 Contribution Margin (c=a-b) $1,695,000 $2,034,000 Fixed Cost Depreciation- P&E $315,000 $315,000 Utilities $135,000 $135,000 Plant Management Salaries $200,000 $200,000 Sales Salary $235,000 $235,000 Advertising Expenses $150,000 $150,000 Salaries $241,000 $241,000 Entertainment expense $90,000 $90,000 Total Fixed Cost ( d) $1,366,000 $1,366,000 Net Operating Income (c-d) $329,000 $668,000

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