[The following information applies to the questions displayed below.] Phoenix Co
ID: 2598304 • Letter: #
Question
[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.
370,000
4. An unfavorable change in business is remotely possible; in this case, production and sales volume for 2017 could fall to 12,000 units. How much income (or loss) from operations would occur if sales volume falls to this level? (Enter any loss with minus sign.)
PHOENIX COMPANYFixed Budget Report
For Year Ended December 31, 2017 Sales $ 3,150,000 Cost of goods sold Direct materials $ 930,000 Direct labor 225,000 Machinery repairs (variable cost) 60,000 Depreciation—Plant equipment (straight-line) 315,000 Utilities ($45,000 is variable) 195,000 Plant management salaries 200,000 1,925,000 Gross profit 1,225,000 Selling expenses Packaging 90,000 Shipping 90,000 Sales salary (fixed annual amount) 235,000 415,000 General and administrative expenses Advertising expense 125,000 Salaries 230,000 Entertainment expense 85,000 440,000 Income from operations $
370,000
Explanation / Answer
Answer:
PHOENIX COMPANY
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2017
Sales (in units)
15000
12000
Contribution margin (per unit)
114
114
Contribution margin
1710000
1368000
Fixed costs
1340000
1340000
Operating income (loss)
370000
28000
Calculation of the contribution margin per unit and total fixed cost
PHOENIX COMPANY
For Year Ended December 31, 2017
Sales
3150000/15000
210
Cost of goods sold
Direct materials
930000/15000
62
Direct labor
225000/15000
15
Machinery repairs (variable cost)
60000/15000
4
Utilities ($45,000 is variable)
45000/15000
3
Packaging
90000/15000
6
Shipping
90000/15000
6
Total varible cost
96
Contribution margin per unit
114
Fixed cost
Depriciation Expanses
315000
Utilities
150000
Plant maager salary
200,000
Sales salary (fixed annual amount)
235,000
Advertising expense
125000
Salaries
230000
Entertainment expense
85000
Total Fixed cost
1340000
PHOENIX COMPANY
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2017
Sales (in units)
15000
12000
Contribution margin (per unit)
114
114
Contribution margin
1710000
1368000
Fixed costs
1340000
1340000
Operating income (loss)
370000
28000
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