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 following information applies 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 units. PHOENIX COMPANY Fixed Budget Report For Year Ended December 31, 2017 $3,150,000 Sales Cost of goods sold Direct materials Direct labor Machinery repairs (variable cost) Depreciation-Plant equipment (atraight-1ine Utilities ($60,000 is var Lable) Plant management salaries $945,000 240,000 45,000 315,000 IBO, 000 210,000 935,000 1,215,000 Gross profit Selling expenses Packaging Shipping 75.000 90,000 Sales salary (fixed annual amount) 235 000400,poo General and administrative expenses dvertising expense Salaries Entertainnent expense 100.000 230,000 85.000 415,000 $ 400,000 Income from operations

Explanation / Answer

Solution:

First of all we need to calculate the Contribution Margin from the flexible budget given.

Contribution Margin is the difference of Sales Revenue and Total Variable Cost.

Sales

$3,150,000

Total Variable Cost:

Direct materials

$945,000

Direct labor

$240,000

Machinery repairs

$45,000

Utilities

$60,000

Packing

$75,000

Shipping

$90,000

Total Variable Cost

$1,455,000

Contribution Margin (Sales - Total Variable Cost)

$1,695,000

Expected Production and Sales Volume

15,000 Units

Contribution Margin Per Unit ($1,695,000 / 15,000 Units)

$113.00

Calculation of Total Fixed Costs

Depreciation Plant Equipment

$315,000

Utilities (180,000 - 60,000)

$120,000

Plant management salaries

$210,000

Sales Salary

$235,000

Advertising Expense

$100,000

Salaries

$230,000

Entertainment Expense (Assumed fixed)

$85,000

Total Fixed Costs

$1,295,000

Part 3 ----

Forecasted Contribution Margin Income Statement

Sales (in units) (A)

15,000

18,000

Contribution Margin per unit (B)

$113

$113

Contribution Margin (A*B)

$1,695,000

$2,034,000

Less: Fixed Costs

$1,295,000

$1,295,000

Operating Income

$400,000

$739,000

$339,000

Increase

Part 4 –

Forecasted Contribution Margin Income Statement

Sales (in units) (A)

15,000

12,000

Contribution Margin per unit (B)

$113

$113

Contribution Margin (A*B)

$1,695,000

$1,356,000

Fixed Costs

$1,295,000

$1,295,000

Operating Income (loss)

$400,000

$61,000

($339,000)

Decrease

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Sales

$3,150,000

Total Variable Cost:

Direct materials

$945,000

Direct labor

$240,000

Machinery repairs

$45,000

Utilities

$60,000

Packing

$75,000

Shipping

$90,000

Total Variable Cost

$1,455,000

Contribution Margin (Sales - Total Variable Cost)

$1,695,000

Expected Production and Sales Volume

15,000 Units

Contribution Margin Per Unit ($1,695,000 / 15,000 Units)

$113.00

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