E10-7 Appliance Possible Inc. (AP) is a manufacturer of toaster ovens. To improv

Question

E10-7 Appliance Possible Inc. (AP) is a manufacturer of toaster ovens. To improve control over operations, the president of AP wants to begin using a flexible budgeting system, rather than use only the current master budget. The following data are available for APs expected costs at production levels of 90,000, 100,000, and 110,000 units. . Variable costs Manufacturing Administrative Selling $6 per unit $4 per unit $3 per unit Fixed costs Manufacturing $160,000 Administrative $ 80,000 Instructions (a) Prepare a flexible budget for each of the possible production levels: 90,000, 100,000, (b) If AP sells the toaster ovens for $16 each, how many units will it have to sell to make a (CGA adapted) and 110,000 units. profit of $60,000 before taxes?

Explanation / Answer

a.The following is the flexible budget:

b.units to be sold to earn a profit of $60,000 = (fixed costs + desired profit) / contribution per unit

contribution per unit = sale price - variable costs

=>$16 - $6 -$4 -$3

=>$3

now,

number of units to be sold

=>($160,000 +80,000 + 60,000) / $3

=>$300,000 / $3

=>100,000 units.

90,000 units 100,000 units 110,000 units Variable costs Manufacturing costs ($6 per unit) $540,000 $600,000 $660,000 Administrative costs ($4 per unit) $360,000 $400,000 $440,000 Selling costs ($3 per unit) $270,000 $300,000 $330,000 Fixed costs Manufacturing costs $160,000 $160,000 $160,000 Administrative costs $80,000 $80,000 $80,000 Total cost $1,410,000 $1,540,000 $1,670,000

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